Onchain Finance Infrastructure Will Transform Stablecoin Adoption And Support Long Term Earnings Power

Catalysts

About Circle Internet Group

Circle Internet Group operates a global Internet-based financial infrastructure platform built around its USDC stablecoin, blockchain services, and payments network.

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

• USDC is deeply embedded as core plumbing in onchain finance, with US$73.7b in circulation and US$9.6t of quarterly onchain volume. This supports continued network fee and reserve income potential as usage scales and can support revenue and earnings.
• The Circle Payments Network is seeing rapid adoption, with 29 financial institutions live, 55 in eligibility review and a 500 institution pipeline. There has been more than 100x growth in trailing 30 day payment volumes to a US$3.4b annualized run rate, which can support transaction revenue and improve operating leverage.
• Arc Network, now in public testnet with over 100 major financial and technology participants and a potential native token under evaluation, positions Circle at the base infrastructure layer for onchain money and could widen the revenue mix beyond reserve income while supporting margins.
• Regulatory clarity for dollar stablecoins in the US and active engagement by central banks globally is pulling mainstream banks, payments firms and capital markets venues toward Circle as a regulated, transparent issuer. This can underpin subscription, services and transaction revenue tied to USDC usage.
• Circle’s tokenized collateral products such as USYC, which has reached roughly US$1b and is described as the second largest tokenized money market fund, are aligning with the shift to tokenized assets and onchain collateral and can support higher margin other revenue and broaden earnings drivers.

Assumptions

This narrative explores a more optimistic perspective on Circle Internet Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Circle Internet Group's revenue will grow by 42.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -8.3% today to 16.4% in 3 years time.
• The bullish analysts expect earnings to reach $1.1 billion (and earnings per share of $4.15) by about January 2029, up from $-200.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $529.0 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 87.5x on those 2029 earnings, up from -97.3x today. This future PE is greater than the current PE for the US Software industry at 33.0x.
• The bullish 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 8.46%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Circle’s current economics are heavily tied to reserve income on USDC balances, and management highlighted that the reserve return rate in Q3 was 4.15%, which was 96 basis points lower year on year. If global interest rates move structurally lower over time, the yield on reserves could compress for a long period, putting pressure on total revenue and limiting the improvement in net margins.
• The earnings call repeatedly referenced strong competition in dollar stablecoins, and management described the market as having two leading issuers plus many smaller players. Over the long run, if new entrants, large financial institutions or networks launch their own stablecoins and incentives, Circle’s network effects could weaken, which may cap USDC circulation growth and weigh on revenue and earnings.
• Circle is investing heavily in building Arc Network and Circle Payments Network, including onboarding and compliance costs and higher adjusted operating expenses of US$131 million in Q3 with full year adjusted operating expenses guided to US$495 million to US$510 million. If adoption of these platforms across mainstream financial institutions takes longer than expected, these higher fixed and variable costs could outpace revenue growth and compress operating margins and EBITDA.
• The business model depends on favorable regulatory treatment for stablecoins and on ongoing engagement with central banks and regulators in the US, Europe, Asia and other regions. If future rules restrict distribution rewards, tighten capital or reserve requirements, or limit use cases such as payments and tokenized collateral, the long term economics of USDC issuance and related services could weaken, affecting revenue, RLDC margin and earnings.
• Circle is actively exploring a native token for Arc Network and expanding into tokenized money market funds and other digital asset products, while also increasing M&A activity. Over a longer horizon, if token economics, product design, or acquisitions do not gain sustained institutional adoption, Circle could face write downs, integration challenges or regulatory scrutiny that weigh on profitability and constrain earnings growth.

Valuation

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

• The assumed bullish price target for Circle Internet Group is $270.91, which represents up to two standard deviations above the consensus price target of $139.02. This valuation is based on what can be assumed as the expectations of Circle Internet Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• 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 $65.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $6.9 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 87.5x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $82.9, the analyst price target of $270.91 is 69.4% 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.