Why did the stock price of "stablecoin giant" Circle drop despite exceeding earnings expectations?

Despite Circle's strong performance in the third quarter financial report, investors are more concerned about its future profitability prospects—multiple pressures such as rising costs, a downward interest rate cycle, and potential insider stock sales.

According to Wall Street News, on November 12, stablecoin issuer Circle announced a strong third-quarter financial report, with revenue and earnings per share exceeding Wall Street analysts' expectations.

However, this positive news did not boost market sentiment, and the company's stock price plummeted more than 12% on the same day. This round of decline has caused the stock to pull back more than 70% from its historical high set on June 23 of this year.

(Circle's stock price plummeted over 12% on Wednesday)

The key factor triggering the market sell-off is the company's update of its full-year expense guidance in the financial report. Circle raised its operating expense forecast for 2025 to between $495 million and $510 million, which has increased investors' concerns about its cost control and future profitability.

In addition, the Federal Reserve's interest rate cut cycle is expected to squeeze Circle's core revenue sources, and the potential early end of the insider stock lock-up period has also added downward pressure on the stock price.

Performance Exceeds Expectations, but Cost Outlook Drags Down

From the financial data, Circle's third-quarter performance can be described as excellent.

The financial report shows that the company achieved revenue of $739.8 million in the quarter, a year-on-year increase of 66%, surpassing the consensus estimate of $706.7 million by analysts. Earnings per share reached 64 cents, far exceeding Wall Street's forecast of 20 cents.

The strong growth in performance is mainly attributed to the expansion of its core product, the US dollar stablecoin USDC. As of the end of September, the circulation of USDC reached $73.7 billion, more than double that of the same period last year.

However, in the financial report, a guidance on future costs became the market's "stumbling block."

Circle raised its operating expense forecast for 2025 from the previous range of $475 million to $490 million to $495 million to $510 million.

Although the company also raised the expected median for non-reserve income from subscriptions and services from $80 million to $95 million, the increase in cost forecasts is clearly larger, directly affecting investors' judgments on future profit margins.

Some of the increased expenditures may be used for the company's planned launch of the Arc blockchain network, which has attracted partners such as BlackRock, HSBC, and Visa.

Concerns Arising from Interest Rate Cut Cycle and Lock-up Period Expiration

Circle's main business model is to earn interest from its USDC reserves, which are primarily invested in money market funds.

However, with the Federal Reserve cutting interest rates consecutively in September and October this year, and further rate cuts expected in December and 2026, the market is concerned that Circle's interest income will decrease as a result Data shows that the company's reserve return rate has decreased by 96 basis points to 4.15% this quarter.

Despite concerns, Circle's Chief Financial Officer Jeremy Fox-Geen refuted the view that declining interest rates are detrimental to the company in a media interview. He stated:

A decrease in interest rates will lead to stronger economic activity, more risk-taking, and increased investment, which is beneficial for our business in the short term.

Another direct factor that triggered the decline in stock prices is the potential early expiration of the so-called "lock-up period."

According to regulatory documents, the stock lock-up period for company executives and internal shareholders may end as early as "the second trading day after the company announces its quarterly financial report for the period ending September 30, 2025," which is this Friday.

Typically, the lock-up period after an IPO lasts for 180 days and should end in early December. This means that a large amount of stock held by insiders may soon flood the market, creating potential selling pressure