Circle Internet Group, Inc. (CRCL, BUY) - 3Q26: Strong Beat, Softer 4Q; BTC Remains the Key Driver; Maintain BUY and $115 PT

Circle Internet Group, Inc. (CRCL, BUY) - 3Q26: Strong Beat, Softer 4Q; BTC Remains the Key Driver; Maintain BUY and $115 PT

We maintain our BUY rating and $115 price target following CRCL’s 3Q26 results. Revenue and adjusted EBITDA exceeded expectations, although declining USDC circulation and a weaker 4Q margin outlook temper the print. Our investment call remains anchored in the crypto cycle. We continue to view BTC as being in the early stages of a bull market and expect its next advance to support USDC demand, while CPN and ARC expand Circle’s longer-term revenue opportunities. 3Q delivered a substantial beat, helped by ARC recognition and lower distribution costs. Revenue of $865M and adjusted EBITDA of $317M were 11% and 54% above consensus, respectively, and 4% and 29% above our estimates. Other revenue reached $207M, including $182M of ARC token presale revenue, while reserve income of $658M was broadly in line with consensus. Distribution costs were below expectations, supporting the earnings beat. The results were strong, but the large presale contribution makes the outlook for underlying USDC balances and retained reserve economics more important than the headline growth. The recent USDC decline appears primarily cyclical. Circulation fell to $70.7B by November 3 from $73.9B at September-end, coinciding with renewed weakness in BTC. We believe the pause in BTC’s advance has temporarily softened crypto liquidity demand, consistent with our longstanding view that crypto market conditions remain the dominant driver of USDC circulation. As reaffirmed in our recent BTC research, our early bull-market view is unchanged. We expect further upside in BTC to broaden into altcoin trading, DeFi participation, collateral demand and yield-seeking activity, ultimately lifting USDC balances. BTC’s trajectory remains our primary indicator for CRCL. The Binance renewal highlights the cost of securing distribution. Management attributed the expected 4Q net reserve margin decline primarily to a full quarter of the renewed Binance agreement. We model a 33.6% net reserve margin, down from 37.8% in 3Q. The agreement reinforces major crypto exchanges’ bargaining power and their ability to capture a meaningful share of reserve economics. We nevertheless view these concessions as necessary to secure distribution and compete for market share. The key is whether the resulting balance growth can offset the lower retained spread as the crypto cycle strengthens. CPN and ARC continue to create additional growth opportunities. CPN’s annualized payment volume increased from approximately $41B at September-end to $58B in late October. Monetization remains modest, but the growing network could support a meaningful contribution to non-reserve revenue in 2027. ARC’s recurring revenue opportunity remains earlier in development. Over time, growth in real-world assets and tokenized financial markets could expand network activity and create new fee, staking and ecosystem revenue streams for Circle. Estimate revisions reflect a strong 3Q and a weaker near-term outlook. We cut 4Q revenue and adjusted EBITDA estimates by 4% and 29% to $743M and $111M. For FY26, revenue is broadly unchanged at $3.00B, while adjusted EBITDA rises 4% to $723M. For FY27, we lower revenue and adjusted EBITDA estimates by 4% and 10% to $3.74B and $746M, reflecting lower USDC balances and higher distribution costs. We retain BUY and our $115 PT, with conviction tied primarily to the continuation of the BTC bull market.