CRCL stock under attack! Bernstein supports Circle: $230 target unchanged

Circle announced its third-quarter revenue to be 740 million USD, exceeding market expectations, but CRCL stock closed with a big dump of 12.2% on that day. The Bernstein analyst team indicated that the recent weakness in Circle's stock price reflects the market's excessive concerns over interest rate cuts and competitive pressures from companies like Stripe, rather than any structural deterioration. The analysts reiterated their “outperform” rating on the stock with a target price of 230 USD.

CRCL stock ignores impressive financial report performance, market overly worried about interest rate cuts

Circle's performance in the third quarter exceeded market expectations, but CRCL stock suffered a big dump, which has drawn market attention due to the divergence between performance and stock price. On Thursday, a team of Bernstein analysts led by Gautam Chhugani pointed out in a report to clients that the recent weakness in Circle's stock price reflects the market's excessive concern over interest rate cuts and competitive pressures, rather than any structural deterioration.

“We have not found any evidence to change our long-term investment logic,” they wrote, emphasizing the continued growth, improved profitability, and the upcoming Layer 1 blockchain Arc. “Circle's USDC still looks like the preferred network for participating in the exponential growth of stablecoins in banking, payments, capital markets, and the emerging agency economy.”

Bernstein also rebutted concerns that a decline in interest rates would harm Circle's revenue model. The analyst stated that assuming the policy interest rate falls to 2% by 2027, Circle's stock price would correspond to an enterprise value/EBITDA multiple of 21 to 29 times, while the company expects its revenue to grow at an annual rate of 20% by 2027 and EBITDA to grow at an annual rate of 33%. “We believe that Circle remains highly attractive with additional options for monetizing stablecoin payments,” they wrote.

This analysis reveals the core contradiction currently faced by CRCL stock: strong fundamentals but pessimistic market sentiment. Concerns about interest rate cuts stem from Circle's business model, where the company earns interest income by investing USDC reserves in short-term U.S. Treasury bonds. When interest rates fall, this portion of income naturally decreases. However, Bernstein points out that even in a low interest rate environment of 2%, Circle's valuation multiples remain reasonable, and the company is developing new sources of income to offset the impact of declining interest rates.

Stripe and other “frenemies” intensify competitive threats

Analysts acknowledge that competitive threats from “frenemies” like Stripe are intensifying. Stripe plans to launch its own Tempo blockchain and has supported USDC through the acquisition of Bridge and Privy. This kind of “frenemy” relationship is not uncommon in the fintech space, where Stripe supports USDC as a payment tool while simultaneously developing its own blockchain infrastructure, potentially leading to competitive products in the future.

Despite some expectations that new entrants would undermine Circle's dominance, Bernstein stated that USDC's liquidity advantage still exists and pointed out that even large companies like PayPal and Ripple have encountered difficulties in launching new stablecoin projects. After the launch of PayPal's PYUSD and Ripple's RLUSD, market performance has been mediocre, indicating that there are strong network effects and first-mover advantages in the stablecoin market.

USDC is currently the second largest stablecoin, second only to Tether's USDT. In the third quarter, the supply of USDC grew by 20% compared to the previous quarter, reaching 73.7 billion USD, with a market share of 29%. More notably, the proportion of balances held directly on the Circle platform increased from 10% in the previous quarter to 14%. This metric indicates that more users are choosing to interact directly with Circle rather than through third-party exchanges or wallets, which is a positive signal for CRCL stocks, as direct customer relationships typically mean higher customer stickiness and lower churn risk.

Main Competitive Pressures Facing Circle

Stripe's Tempo Blockchain: After acquiring Bridge and Privy, Stripe has the capability to launch competitive stablecoin products.

Traditional payment giants entering the arena: Traditional payment networks such as PayPal and Visa are exploring the stablecoin business.

Emerging Blockchain Platforms: New Layer 1 and Layer 2 blockchains may choose other stablecoins as their primary settlement currency.

However, Bernstein believes that these competitive threats are overestimated by the market. The winners in the stablecoin market are often those participants with the deepest liquidity, the broadest integration, and the strongest regulatory compliance capabilities. Circle has significant advantages in all three areas. USDC has already been integrated into hundreds of DeFi protocols, centralized exchanges, and payment applications, and this network effect is difficult for newcomers to replicate in the short term.

Third quarter financial report highlights, profit margin significantly increased

In addition to revenue and adjusted EBITDA data, Circle's reserve income grew by 12%, reaching $711 million, and the adjusted EBITDA profit margin grew by 700 basis points to 57% in the third quarter. This level of profit margin is extremely rare in the fintech industry, indicating that Circle's business model has strong economies of scale.

Circle Q3 Financial Report Key Data

Revenue: 740 million USD (exceeding expectations by 5%)

Adjusted EBITDA: $166 million (26% above expectations)

Reserve Income: 711 million USD (Quarterly Increase 12%)

EBITDA Profit Margin: 57% (Quarterly increase of 700 basis points)

USDC Supply: 73.7 billion USD (Quarterly increase of 20%)

USDC Market Share: 29%

The significant increase in profit margins primarily comes from two factors. First, the rapid growth of USDC supply has brought about economies of scale, which has diluted fixed costs. Second, Circle is optimizing its operational efficiency, including automating compliance processes and improving technological infrastructure. For CRCL stock investors, this trend of expanding profit margins is extremely important as it demonstrates that the company is not only increasing revenue but also enhancing the quality of its profits.

Analysts pointed out that the supply of USDC grew by 20% compared to the previous quarter, reaching 73.7 billion USD, with a market share of 29%; at the same time, the proportion of balances held directly on the Circle platform increased from 10% in the previous quarter to 14% of the total supply. This trend indicates that Circle is transforming from a simple stablecoin issuer into a comprehensive financial services platform.

Arc Blockchain and Native Token Exploration

Bernstein added that the company's ongoing network infrastructure— including the Arc blockchain public testnet launched in October with over 100 notable participants, as well as the rapidly expanding Circle Payment Network currently covering 8 countries— allows Circle to benefit from the sustainable growth of USDC, a growth that will transcend cryptocurrency market cycles.

It is worth noting that Circle also disclosed in its earnings report that, in addition to USDC, it is “exploring” the possibility of issuing a native token for its Arc blockchain. This news adds new imaginative possibilities for CRCL stock. Arc is a Layer 1 blockchain being developed by Circle, designed to provide specialized infrastructure optimized for stablecoins and tokenized assets.

If Circle issues a native token for Arc, this will create new sources of revenue and value capture mechanisms. Native tokens are typically used for paying network fees, participating in governance, or as staking rewards. For investors holding CRCL stocks, the launch of the Arc token may bring additional value growth points, as Circle, being the main developer and promoter of Arc, will benefit from the token economy.

The Arc public testnet has attracted over 100 notable participants, including financial institutions, payment service providers, and DeFi protocols. This broad early engagement indicates that Arc has the potential to become an important choice for enterprise-level blockchain. The Circle Payment Network (CPN) currently covers 8 countries and is expanding rapidly. CPN allows businesses and financial institutions to use USDC for cross-border payments and settlements directly, bypassing the traditional SWIFT system for faster and lower-cost transfers.