Circle shares fell 12% after the report. Why did JPMorgan start advising to buy them?
Despite a 12% drop in Circle Internet Group quotes after the quarterly report on November 12, JPMorgan analysts advised to buy the issuer's securities USDC. They called the results for the third quarter "confident", noting that key metrics exceeded their expectations. JPMorgan raised the securities' valuation by two steps at once - from "Below market" (underweight) to "Above market" (overweight) and raised the target price on Circle shares from $94 to $100.
"The quarter's results, in our view, show that stablecoins continue to penetrate traditional finance, with USDC token remaining one of the leading stablecoins and Circle a key partner," JPMorgan analysts wrote in a note cited by MarketWatch.
At the same time, JPMorgan analysts recognized that USDC's market share has stopped growing, while Tether (USDT) is strengthening its position and Circle continues to actively invest in its infrastructure. Now there is about $75 billion in USDC in circulation, which makes the token the second steiblcoin by capitalization after Tether, which has about $183 billion in circulation.
"One of the big questions is whether the stablecoin market will become a 'winner-take-all' model. The answer is critical to assessing Circle's future gross margin," JPMorgan added.
Circle shares were down 0.5% to $85.8 in Thursday trading. This is their lowest value since June 5, the day when the USDC issuer made a public offering.
What other analysts are saying
- "The third quarter is acceptable. But the outlook for the fourth quarter implies a slowdown and difficulties with growth," Mizuho Securities analyst Dan Dolev wrote in a research note cited by Bloomberg.
- "Investors are likely wary of rising USDC distribution costs," Baird analyst David Koning wrote. He added that "revenue minus distribution costs" margins could be around 35% in the fourth quarter, up from 38-40% in the first three quarters. That's despite Circle raising its full-year margin outlook to 38%, the top end of its previous range, Bloomberg notes. Koning's comment comes as investors turned their attention to the company's distribution, transaction and other costs: they rose 74%, Bloomberg explains. This is due to higher USDC distribution fees and an increase in average USDC balances on the Coinbase platform, as well as other partnerships, Circle noted.
- U.S. Tiger Securities analyst Bo Pei attributed the drop in Circle shares on Wednesday to a revision of its full-year gross margin forecast to 38 percent, which he said implied a weaker fourth quarter, Reuters wrote.
- "The decline in quotes could be due to the fact that current stock valuations still reflect inflated expectations of USDC growth, as well as the possible launch of the Arc native token, which could affect the pace of USDC's own proliferation," Clear Street managing director Owen Lau said in a commentary to Reuters.
This article was AI-translated and verified by a human editor
