Circle Stock Price May Double Amidst Near-Term Margin Pressure

Circle Internet Group Inc., which operates on the NYSE under the ticker CRCL, is bracing for its second-quarter earnings report amidst pressure on the profitability of its stablecoin business. Despite trimming its estimate and forecasting weaker margins, JPMorgan remains optimistic about the company's growth prospects.

JPMorgan analyst Kenneth Worthington maintained an Overweight rating on Circle with a $120 price target, indicating nearly 100% upside from Monday's close of $60.35. The bank lowered its second-quarter earnings per share estimate by one cent to 15 cents following Coinbase Global Inc.'s (NASDAQ:COIN) earnings release.

JPMorgan expects Circle's reserve-linked distribution costs to rise significantly in the second quarter, with third-party distribution expenses growing to about $106 million from $81 million in the prior quarter. As a result, the bank estimates Circle's reserve-linked distribution contribution margin will fall to 39% from 42% in the first quarter.

However, JPMorgan found encouraging signs beneath the surface of Coinbase's earnings, which suggests Circle may be gaining traction despite stablecoin trading and decentralized finance activity remaining relatively subdued. The bank now estimates Circle held approximately $15 billion of on-platform USDC, up from its earlier forecast of $13.6 billion.