CRCL
Margin squeeze, meet Wall Street optimism
Circle is walking into earnings with a bit of a weird vibe: the business that powers USDC is getting more expensive, but JPMorgan still thinks the stock has room to almost double. Kenneth Worthington kept an Overweight rating and a $120 price target on CRCL, even after shaving second-quarter EPS by a penny to 15 cents.
What’s crimping the profits?
The short version: Circle’s reserve-linked distribution costs are expected to rise, which means more cash flowing to exchanges and other partners that help push USDC out into the world. JPMorgan now expects third-party distribution expenses to climb to about $106 million from $81 million in the prior quarter, with total distribution and transaction costs around $426 million.
That matters because it drags down Circle’s reserve-linked distribution contribution margin to an expected 39% from 42% in Q1. In plain English: the stablecoin is still growing, but the toll booths along the highway are taking a bigger cut.
Why the bank still likes the setup
Here’s the twist. JPMorgan thinks some of the USDC mix is shifting in Circle’s favor. Coinbase held about $20.25 billion of on-platform USDC in the quarter, while JPMorgan estimates Circle itself held about $15 billion on its own platform, up from a prior forecast of $13.6 billion. That’s the better-economics bucket, so even with higher distribution costs, the mix is still pointing in the right direction.
The bank’s bigger argument is that this looks more like a growth-investment phase than a broken business model. Near-term margins may be getting pinched, but JPMorgan left its longer-term forecasts mostly intact — which is analyst-speak for: "yes, the blender is loud, but the smoothie could still be great."
The investor question hanging over earnings
Circle is set to report on Wednesday, and investors will be watching to see whether this margin pressure is just the cost of building out USDC’s distribution network or the first sign that the economics are getting structurally tougher.
Big picture: Circle doesn’t need perfect margins to keep bulls happy — but it does need proof that growth is still worth the bill.