Second-quarter results were broadly in line with expectations, while the quality of the guidance increase still warrants scrutiny

Overview

Circle’s second-quarter EPS and core EPS were slightly above expectations, while adjusted EBITDA was broadly in line with expectations. Net revenue and RLDC margin performed well, mainly benefiting from lower-than-expected distribution and transaction costs; meanwhile, total reserve income was slightly below consensus expectations, other net revenue was meaningfully below expectations, and adjusted operating expenses were also higher than expected. The company maintained its guidance for medium-term USDC circulation growth and 2026 adjusted operating expenses, and raised guidance for other revenue and RLDC margin, but the increase mainly reflects one-time Arc token presale revenue.

Core views

Goldman Sachs expects the market’s near-term reaction to these results to be modestly positive, as net revenue and RLDC margin were slightly better than expected. However, there are questions about the sustainability and earnings quality of the guidance increase: the company has recognized $222mn of Arc presale revenue in the first quarter and approximately $21mn in June, and it will still be necessary to distinguish the contribution of Arc revenue from core business improvement to margins. The revised Hyperliquid partnership may dilute RLDC margin, while expense growth, USDC growth trends, and stablecoin competition also limit the certainty of further fundamental improvement.

Analysis framework

The report identifies sources of performance variance by comparing second-quarter EPS, net revenue, reserve income, other revenue, operating expenses, and margins item by item against GSe and consensus expectations; it then breaks down the impact of distribution costs, reserve yield, USDC circulation scale, and Arc presale revenue on margins and guidance, and uses future Q5-Q8 EPS and a 32.5x adjusted P/E excluding stock-based compensation to determine the target price.

Methodology notes

• Earnings AnalysisExpectations Gap Analysis

  Compare actual results with institutional forecasts and consensus expectations

  The report compares second-quarter EPS, net revenue, each revenue item, expenses, and margins with GSe and consensus expectations to assess earnings quality and potential market reaction.

• Profitability AnalysisMargin Driver Decomposition

  Distinguish the contributions of cost improvement, core revenue, and one-time revenue to margins

  The report focuses on analyzing the support from lower distribution and transaction costs for net reserve margin, and notes that the increase in RLDC margin guidance mainly includes one-time Arc token presale revenue and cannot be fully viewed as an improvement in core margin.

• Valuation methodsAdjusted P/E Valuation Method

  Calculate the target price by multiplying forward adjusted EPS by the target P/E multiple

  The 12-month target price of $82 is based on future Q5-Q8 EPS forecasts and a 32.5x adjusted P/E excluding stock-based compensation.

• Multi-Factor ResearchGoldman Sachs Factor Profile

  Compare stocks across growth, financial returns, valuation multiples, and composite dimensions

  This proprietary framework uses standardized rankings of forward sales, EBITDA, EPS, return on equity, and valuation metrics to form percentiles; this report discloses the framework methodology but does not provide CRCL’s specific factor scores.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• CRCL.US

  U.S.-listed stock directly covered by the report

  Strengths

  Second-quarter net revenue and net reserve income were better than expected, distribution and transaction costs were lower than expected, and average USDC circulation increased 25% year over year.

  Weaknesses

  Other net revenue was below expectations, adjusted operating expenses were above expectations, and adjusted EBITDA margin was slightly below consensus expectations.

  Comparison

  Actual net revenue was 2% and 1% above GSe and consensus expectations, respectively, but operating expenses were 5% and 6% higher, respectively.

  Risks

  Earnings quality distortion from one-time Arc revenue, slowing USDC growth, intensified stablecoin competition, partnership terms diluting margins, and regulatory uncertainty.

• USDC

  Core underlying asset for CRCL’s reserve income and ecosystem growth

  Strengths

  Average circulation increased 25% year over year, and the company maintained medium-term guidance for a 40% compound annual growth rate in circulation.

  Weaknesses

  Ending USDC on Circle’s platform declined 9% quarter over quarter to $12.4bn, and the report also notes that USDC market capitalization has declined 5% year to date.

  Comparison

  The company’s medium-term growth guidance of 40% is significantly above GSe and consensus forecasts of 26% and 24% for 2025-2027.

  Risks

  Weak crypto market conditions, competition from USDT, Coinbase lowering the strategic priority of USDC, slower-than-expected growth in new use cases, and regulatory changes.

• Arc

  Circle’s planned blockchain and the main one-time revenue source behind this guidance increase

  Strengths

  Token presales significantly raised 2026 guidance for other revenue and RLDC margin, and the public mainnet is scheduled to launch on September 16, 2026.

  Weaknesses

  Presale revenue is one-time in nature and does not directly represent the ongoing profitability of the core business.

  Comparison

  After incorporating Arc presales, other revenue guidance was raised from $150mn-$170mn to $310mn-$330mn, and RLDC margin guidance was raised from 38%-40% to 41.7%-43.7%.

  Risks

  Unclear scale of revenue recognition in subsequent quarters, mainnet launch and ecosystem adoption falling short of expectations, and margin retracement after one-time revenue fades.

Key data

• Second-quarter EPS$0.18Above the Visible Alpha consensus expectation of $0.17.
• Second-quarter core EPS$0.30Above GSe and comparable-basis consensus expectations of $0.29.
• Adjusted EBITDA$143mnGSe and consensus expectations were $144mn and $142mn, respectively; corresponding margin was 49.7%.
• Second-quarter net revenue$289mn2% and 1% above GSe and consensus expectations, respectively.
• Second-quarter RLDC margin41.2%Approximately 130 and 110 basis points above GSe and consensus expectations, respectively.
• Net reserve income$257mn7% and 4% above GSe and consensus expectations, respectively, and up 13% year over year.
• Total reserve income$668mnIn line with GSe and 1% below consensus expectations, up 5% year over year; average USDC circulation increased 25% year over year, but reserve yield declined 66 basis points year over year.
• Other net revenue$32mnApproximately 25% and 20% below GSe and consensus expectations, respectively; other net revenue margin was 93.9%.
• Adjusted operating expenses$146mn5% and 6% above GSe and consensus expectations, respectively, up 23% year over year.
• Medium-term USDC circulation guidance40% compound annual growth rateAbove GSe and consensus forecasts of 26% and 24% compound annual growth rates for 2025-2027.
• 2026 adjusted operating expense guidance$570mn-$585mnThe company maintained its previous guidance, with the midpoint 1% and 2% above GSe and consensus expectations, respectively.
• 2026 other revenue guidance$310mn-$330mnPrevious guidance was $150mn-$170mn; the increase mainly incorporates Arc token presale revenue.
• 2026 RLDC margin guidance41.7%-43.7%Previous guidance was 38%-40%; the increase mainly incorporates Arc token presale revenue.
• Disclosed Arc presale revenueFirst quarter $222mn, approximately $21mn in JuneOne-time revenue significantly affects the comparability of other revenue and RLDC margin guidance.
• Ending USDC on Circle platform$12.4bnDown 9% quarter over quarter.

Impact & implications

Net revenue and RLDC margin slightly exceeding expectations may support near-term share price performance, but the core fundamental signals are mixed. On the cost side, lower-than-expected distribution and transaction expenses improved net reserve income, while operating expense growth weakened operating leverage. More importantly, the full-year guidance increase mainly comes from one-time Arc token presales; if core RLDC margin improvement is limited after excluding this factor, current guidance may overstate sustainable profitability. The medium-term investment thesis still depends on USDC circulation growth, progress in stablecoin regulation, reserve yields, distribution partnership terms, and actual adoption after the Arc mainnet launch.

Risks

• Arc token presale revenue is one-time in nature and may exaggerate the extent of improvement in core other revenue and RLDC margin.
• The revised Hyperliquid partnership may dilute RLDC margin.
• USDC growth may be affected by weak crypto market conditions, insufficient expansion of new use cases, and market share competition.
• USDT may continue to expand its competitive advantage, or Coinbase may lower the strategic priority of USDC.
• Declining interest rates will pressure reserve asset yields and reserve income.
• Operating expenses remaining above expectations may limit operating leverage.
• There is uncertainty around the CLARITY Act and other stablecoin regulatory outcomes.
• The Arc public mainnet launch, ecosystem development, and commercialization progress may fall short of expectations.

What to watch

• The latest progress on the CLARITY Act, and the impact of the bill passing or not passing on Circle’s business.
• The scale of Arc presale revenue recognition in the third and fourth quarters of 2026, as well as core other revenue and RLDC margin guidance excluding this revenue.
• Operating performance, developer participation, and ecosystem adoption after the Arc public mainnet launches on September 16, 2026.
• USDC circulation, market share, and growth in new application scenarios in the second half of 2026 and over the longer term.
• Progress in agentic artificial intelligence application scenarios and Circle Agent Stack products.
• Whether the company can maintain its 2026 adjusted operating expense guidance of $570mn-$585mn after second-quarter expenses exceeded expectations.
• The actual impact of changes in Hyperliquid partnership terms on distribution costs and RLDC margin.
• The impact of reserve yields, the interest-rate environment, and changes in distribution payments on net reserve income.