Due to market concerns that interest rate declines will put pressure on future earnings, overshadowing better-than-expected third-quarter revenue and profits, stablecoin issuer Circle's stock plummeted by 12%. Although CEO Jeremy Allaire stated that lower interest rates would help promote the adoption of Circle's full suite of products, four analysts, including Mizuho Securities analyst Dan Dolev, believe that CRCL is overvalued and have given it a 'sell' rating. Additionally, due to a significant increase in IPO equity incentive expenses, Circle has accumulated a loss of $200 million this year.
Interest rate cuts are detrimental to Circle's earnings, CRCL stock plummeted by 12%
Due to market concerns that declining interest rates will put pressure on future earnings, overshadowing better-than-expected third-quarter revenue and profits, stablecoin issuer Circle's stock price plummeted 12%, marking the largest drop since June.
(Circle Q3 financial report: USDC circulation doubles, net profit soars 202%)
Although Circle's USDC stablecoin circulation has grown more than double compared to the same period last year, and revenue has grown over 66% as a result, the company pointed out on Wednesday that for the quarter ending September 30, its reserve yield had decreased by 96 basis points compared to the same period last year, dropping from 5.11% to 4.15%. Most of Circle's profits come from interest income on U.S. government bonds they hold, which are used as reserves for their stablecoin.
CEO Allaire: Lowering interest rates helps promote the widespread adoption of Circle's full suite of products
The company is continuously expanding its revenue sources by launching new products like blockchain-based payment networks and tokenized money market funds. CEO Jeremy Allaire stated in an interview with Bloomberg after the quarterly earnings release that lowering interest rates will help promote the widespread adoption of Circle's full suite of products.
When interest rates decline, there is more investment capital in the economy, and the velocity of money circulation also increases. As these two factors come into play, it actually creates a strong tailwind for the adoption of this new type of currency and new technology.
Circle has officially launched the public testnet of its own L1 blockchain Arc, with over 100 institutions covering banking, payments, asset issuance, and technology companies participating, including heavyweight firms like Deutsche Börse Group, Finastra, Visa, and Fireblocks.
Allaire pointed out that although the reserve yield has declined, the circulation of USDC is rapidly increasing as the company adds new partners to its network.
Interest rates are not a determining factor of actual income; network growth and adoption are the keys to determining income.
Due to a significant increase in equity incentive expenses from the IPO, Circle still lost 200 million dollars this year.
Although Circle's revenue has continued to grow this year, it still accumulated a loss of 200 million dollars by the end of September, mainly due to equity incentive expenses (Compensation expense). Certain restricted stock units granted to employees include service conditions and performance conditions related to liquidity events, which were achieved at the time of the IPO, leading the company to recognize 423.8 million dollars in stock-based compensation expenses.
Circle also recorded 59 million dollars in equity incentive expenses in the third quarter, reflecting the company's high investment in talent, but also placing a significant burden on the company.
CRCL's stock price has retraced 70% since the IPO surge.
Circle was officially listed on 6/5, with an issue price of 31 dollars per share, which once surged to 298 dollars after listing, an increase of up to 8.6 times, but has now fallen more than 70% from its historical peak.
Mizuho Securities analyst Dan Dolev believes Circle is overvalued and has given it a sell rating. According to Bloomberg's analysis, 4 analysts have given a 'sell' rating, while 11 analysts have given a 'buy' rating, and 10 analysts have given a 'hold' rating.
This article states that Circle still lost 200 million dollars this year, and lowering interest rates is detrimental to reserve returns, with the stock price plummeting 12% in a single day, first reported by Chain News ABMedia.
