Circle slides on rate-cut worries despite Q3 beat

Circle shares dropped as much as 5.8% on Wednesday after the company beat third-quarter revenue expectations but reported a 96-basis-point decline in its reserve return rate to 4.15%, reviving concerns that falling interest rates could curb profits.

Revenue rose 66% to $740 million in the quarter ended Sept. 30, above the $707.4 million average analyst estimate. Net income from continuing operations reached $214 million, or 64 cents per share. Results included a $61 million income tax benefit tied to stock-based compensation, research and development credits and recent U.S. tax law changes, and a $48 million gain from a lower fair value of convertible debt as the stock fell during the quarter.

Circle reported that the reserve return rate declined as market rates eased. The company earns most of its profit from interest on U.S. government securities held in reserve to back its USDC stablecoin. The Federal Reserve began cutting rates in September, and investors are focused on how lower yields may affect future returns.

Top-line growth was driven by USDC expansion. The supply in circulation more than doubled from a year earlier, and about $75 billion of the dollar-pegged tokens are now outstanding, second to roughly $183 billion of USDT. Expenses also moved higher. Distribution, transaction and other costs rose 74% year over year, reflecting larger distribution payments linked to the higher USDC base and growth in Coinbase’s average on-platform USDC holdings and other partnerships. Operating expenses increased 70%, largely from higher compensation.

Some analysts flagged Circle’s reliance on interest income as a pressure point in a lower-rate environment, noting that while the third quarter was solid, guidance for fiscal 2025 points to slower growth.

Circle, which went public in June, saw its shares climb more than 200% after listing as interest in stablecoins built ahead of a federal framework finalized in July. The stock now trades more than 60% below its summer peak. After Circle’s debut, crypto exchange Bullish listed on the NYSE, and Gemini began trading in September.

The company is moving to broaden its revenue base. Circle is developing a blockchain-based payments network and a tokenized money market fund, and is exploring a native token on Arc, its recently announced blockchain. More than 100 companies are participating in Arc’s public testnet, according to the company.

As earlier reported by GNcrypto, Circle opened the Arc public testnet on Oct. 28 in New York, an L1 blockchain for onchain finance with dollar-based fees and sub-second finality. More than 100 companies are testing, including banks and asset managers, tech and payments firms, and crypto platforms. Circle plans to support stablecoins for network fees, provide tools for stablecoin swaps and onchain FX, and expand validator participation.