Circle Shares Drop After Share Sale Announcement

Circle (CRCL) saw its shares plunge over 5% during post-market trading on Tuesday. This drop followed the company’s decision to sell 10 million shares after a significant 425% increase since its IPO. The announcement came right after the release of its first revenue report since going public.

In an SEC filing, the stablecoin issuer detailed that it would offer 2 million Class A common shares, alongside 8 million shares from existing shareholders.

During regular trading, Circle’s shares closed at more than $163, culminating in a market cap of about $658 million—analysts had projected earnings of $647 million for the second quarter.

CEO Jeremy Allaire described their stablecoin, USDC (USDC-USD), as “the fastest growing major stablecoin of the past year.”

The circulation of USDC increased by 90% year-over-year, reaching $61.3 billion at the quarter’s end, which is quite a jump from 6.4% to $65.2 billion as of August 10th.

“Overall activity in the digital asset economy is on the rise,” Allaire mentioned in an interview with Yahoo Finance on Tuesday morning.

He continued, “We’re expanding the use of digital dollar currency like USDC as a useful tool in transnational settlements. The use cases are broadening, and people seem to be recognizing it as a significant utility—it’s a new currency.”

Additionally, the company announced a new blockchain network called ARC, set to launch later this year.

Allaire noted that they aim to create a streamlined process for agencies to pay in a rapid and predictable manner, which would maintain low and stable fees from an accounting standpoint.

Since launching on June 5th, Circle has been central to the optimism in the stablecoin market spurred by legislative progress establishing a framework for asset-backed digital tokens.

Circle generates substantial revenue from interest income, particularly from the short-term Treasury bills that underlie the USDC stablecoin.

The company’s reserve income saw a 50% increase year-on-year, totaling $634 million, primarily due to an 86% growth in USDC distribution.

Allaire indicated that a decline in Federal Reserve interest rates would help offset any decreases in Treasury yields, thereby supporting stablecoin growth.

He elaborated, “Lower interest rates might stimulate spending in the economy as investment capital recovers.” Meanwhile, Circle shares some of its income with its primary distribution partner, Coinbase.

Recently, analyst Engel from Compass Point highlighted the potential risks tied to escalating distribution costs as Circle broadens its network while continuing to share interest income.

This Tuesday morning, Engel provided a profit margin guidance for Circle between 36% and 38% for fiscal year 2025, indicating it may be slightly lower.

He noted, “The margin in the second half is expected to fall below 39% compared to the first half of the year, and we expect more substantial profits in the latter half of 2025.”

While some analysts view the low margin guidance as overly cautious, the latest partnerships seem to not enhance short-term margin outlooks. Engel reiterated a sell rating, suggesting a price target of $130.

Conversely, other analysts on Wall Street perceive Circle as an opportunity for investors to engage in the growing enthusiasm around stablecoins.

They noted, “Circle is a global leader in stablecoins and represents the purest stablecoin investment in the public market, with expectations of additional profits as the company continues to create opportunities for itself and its partners.”

Analysts generally maintain a buy rating, with a optimistic price target of $280 for the stock.

Circle’s report comes as the market, along with notable crypto rallies, braces for potential interest rate cuts from the Federal Reserve, while discussions about including crypto options in 401(k) plans are gaining traction.

Before the revenue announcement, Wall Street analysts had a mix of ratings on Circle stock, including nine buys, five holds, and four sells.