Circle Internet Group (CRCL +17.52%) has been one of the hottest stocks on Wall Street in recent weeks. The company held its initial public offering (IPO) on June 5, listing 34 million shares on the New York Stock Exchange. Circle priced its IPO at $31 per share, but the stock opened at $69 and has since soared 290% to $270.
Here's what investors should know.
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Circle is the company behind stablecoin USDC
Circle endeavors to improve the global financial system by enabling a frictionless exchange of value. Central to that mission is its goal of building the world's largest network of stablecoins, blockchain assets that not only democratize access to financial services, but also support faster and cheaper payments than traditional options.
Specifically, Circle issues USDC (USDC +0.00%), a cryptocurrency tied to the U.S. dollar. It is the second-largest stablecoin by market value. The company also issues EURC (EURC 0.01%), a cryptocurrency tied the European Euro. Both stablecoins are backed by an equivalent amount of fiat-denominated reserve assets.
Importantly, interest earned on those assets currently accounts for the vast majority of revenue, which means Circle is very susceptible to fluctuations in prevailing interest rates. However, the company plans to diversify its business by leaning into payments, which will let it earn revenue from transaction fees.
Circle has yet to report financial results as a public company, but its recently filed Form S-1 shows revenue increased 59% to $579 million in the first quarter. That was due to a large increase in circulating USDC that more than offset a decrease in the reserve return rate. On the bottom line, adjusted EBITDA rose 60% to $122 million.
Stablecoins are building momentum with regulators
Stablecoins are building momentum with regulators around the world. The European Union recently enacted the Markets in Crypto-Assets (MiCA) framework, which establishes conduct obligations for stablecoin issuers. Circle's USDC is the only top-10 stablecoin currently in compliance with the MiCA regulations. However, the company's EURC is also compliant, though it does not rank among the 10 largest stablecoins.
Meanwhile, the United States Senate last week approved the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins). The bill seeks to protect consumers by imposing rules on stablecoin issuers, including full reserve backing with U.S. dollars and short-term Treasuries, monthly reserve disclosures, and annual audits. The legislation now moves to the House of Representatives.
The stablecoin market could hit $2 trillion in the future
Circle could be a much larger company in the future as stablecoins play an increasingly important role in the global financial system. Seaport Research analyst Jeff Cantwell says the collective market capitalization of all stablecoins could nearly double from $260 billion today to $500 billion by the end of 2026. He also estimates the stablecoin market will eventually hit $2 trillion.
Cantwell believes that will translate into long-term annual revenue growth of 25% to 30% for Circle. He is particularly bullish due to the recent launch of Circle Payments Network, a platform that lets banks and other financial institutions to process global payments in real time. "This looks like it potentially can be a disruptive service in areas like supplier payments, remittances, and even payroll," Cantwell wrote.
NYSE: CRCL
Key Data Points
Is Circle stock a smart buy after its monster gains post-IPO?
Circle's revenue totaled $1.9 billion over the trailing 12 months and the company currently has a market capitalization of $57 billion. Dividing revenue into market capitalization gives a valuation of 30 times sales, which is rather expensive. In fact, only three companies in the S&P 500 currently have a price-to-sales multiple above 30: Palantir, Texas Pacific Land, and CrowdStrike.
Here's the bottom line: Most Wall Street institutions have yet to ser a target price for Circle. But Jeff Cantwell at Seaport put his target at $235 per share, a reasonable forecast that implies 13% downside from the current share price of $270. With that in mind, I think prospective investors should wait for this red-hot IPO stock to cool down a bit before purchasing a position.
