US Dollar Stablecoin Adoption Will Drive Long Term Earnings Power

Catalysts

About Circle Internet Group

Circle Internet Group operates a global Internet financial platform centered on USDC and related blockchain based infrastructure for payments, capital markets and digital asset applications.

What are the underlying business or industry changes driving this perspective?

• Accelerating mainstream adoption of USDC for cross border and B2B payments via Circle Payments Network, with over 100x growth in trailing 30 day volumes and a pipeline of 500 institutions, should translate into sustained transaction driven revenue expansion and higher operating leverage.
• Structural migration of financial market activity onto tokenized rails, evidenced by USYC becoming the second largest tokenized money market fund and growing 200% since last quarter, positions Circle to capture higher margin other revenue and support durable earnings growth.
• Rising global regulatory clarity for dollar stablecoins, including the GENIUS Act and emerging regimes in Europe, Asia and the Middle East, is pushing large banks, payment firms and exchanges to choose trusted issuers like Circle, supporting share gains, more stable reserve income and expanding net margins.
• Launch and commercialization of Arc as an enterprise grade economic operating system with a potential native token and participation from major institutions such as BlackRock, HSBC and Visa can add new high margin infrastructure revenue streams and deepen USDC network effects, supporting long term EBITDA margin expansion.
• Growing institutional use of USDC as core collateral and settlement in both crypto native and traditional capital markets, including derivatives and tokenized assets, increases circulation and velocity, which should underpin reserve income, diversify other revenue and drive compounding growth in earnings.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Circle Internet Group's revenue will grow by 34.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -8.3% today to 13.0% in 3 years time.
• Analysts expect earnings to reach $758.8 million (and earnings per share of $2.86) by about December 2028, up from $-200.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.6 billion in earnings, and the most bearish expecting $590.7 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 70.2x on those 2028 earnings, up from -103.7x today. This future PE is greater than the current PE for the US Software industry at 31.9x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.49%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Long term declines in benchmark interest rates, like SOFR, would reduce the 4.15% reserve return rate that currently underpins a large share of Circle Internet Group revenue. This could slow top line growth and compress net margins even if USDC circulation continues to rise.
• As stablecoins become more mainstream and regulators like the Federal Reserve and global central banks move deeper into the space, new rules on rewards, distribution economics or reserve structures could limit Circle Internet Group ability to pay partners and differentiate. This could pressure revenue growth and RLDC margin over time.
• The stablecoin and Internet financial platform market is trending toward a winner take most structure with multiple large issuers and traditional financial institutions entering. If new competitors or bank issued tokens erode USDC network effects, Circle Internet Group could see slower USDC circulation growth, weaker pricing power and lower earnings than expected.
• Arc and Circle Payments Network are still early, with Arc not expected to launch commercially until 2026. If real world adoption of onchain payments and tokenized capital markets lags current expectations, the high margin subscription, services and transaction revenues tied to these products may not scale fast enough to support the forecast expansion in company wide EBITDA margin.
• Circle Internet Group strategy depends on rapidly expanding a global liquidity and compliance footprint. If geopolitical shifts, cross border capital controls or delays in obtaining licenses in key regions like the European Union, Asia or the Middle East slow network build out, this could limit cross border payment volumes and constrain long term revenue and earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $144.67 for Circle Internet Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $280.0, and the most bearish reporting a price target of just $60.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $5.8 billion, earnings will come to $758.8 million, and it would be trading on a PE ratio of 70.2x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $88.41, the analyst price target of $144.67 is 38.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.