CRCL Erases Gains: Mixed Earnings as AI Payment Narrative Struggles to Offset Profit Gap

TradingKey - Stablecoin giant Circle (CRCL.US) released first-quarter earnings before the market opened on May 11, with the stock price reversing gains during the session as volatility widened sharply, swinging from an over 8% rise to a drop of more than 6%.

Impacted by revenue falling short of Wall Street expectations, the stock price immediately came under downward pressure.

Mixed earnings reports prompt market to sell first and wait.

Market consensus for Circle was an EPS of $0.18, while actual GAAP EPS reached $0.21, exceeding market expectations. Meanwhile, analysts expected Circle's revenue to be between $715 million and $717 million, but the company's Q1 revenue recorded $694 million, falling short of market expectations.

Even though revenue is still expanding 20% year-on-year on a full-year basis, the fact that it missed expectations led to an immediate sell-off in the stock price.

Circle's total revenue and reserve revenue for the quarter was $694 million, up 20% year-on-year. However, the growth of reserve revenue, which accounts for 94% of the total, slowed significantly, rising only 17% year-on-year to $653 million. This was primarily because the 39% year-on-year increase in average USDC circulation to $75.2 billion was offset by a 66-basis-point year-on-year decline in the reserve yield to 3.5%.

Furthermore, distribution and transaction costs were $407 million, up 17% year-on-year and within the controlled range. However, operating expenses surged 76% year-on-year to $242 million, primarily driven by a sharp increase in costs related to a one-time stock-based compensation mechanism following the company's IPO—compensation-related expenses skyrocketed from $75.62 million a year ago to $138 million.

Net profit plummeted 15% to $55 million, trending in the same direction as the nearly doubled investment in R&D, stock-based compensation, and related ecosystem investments. However, adjusted EBITDA grew 24% to $151 million; by stripping out many stock-based expenses, this metric suggests that Circle's core business cash generation capability has not deteriorated, but rather that investors are currently more inclined to exit based on the decline in net profit.

Improving Business Performance Faced with Executive Divestment Challenges

Beyond financial figures, USDC circulation grew 28% year-over-year to $77 billion, and USDC on-chain transaction volume soared 263% year-over-year to $21.5 trillion, accounting for 63% of the total stablecoin transaction volume in the market.

Native balances custodied at Circle reached $13.7 billion, surging 254% year-over-year, suggesting that more project teams and institutions prefer to retain assets within the Circle ecosystem rather than see them exit. Although ecosystem metrics indicate long-term improvement, investor concerns over current earnings quality have swiftly reassumed control over pricing.

Executives have also stepped up the pace of unloading shares while the stock price hit year-to-date highs ahead of earnings. In the past three months, insiders net sold approximately $72.5 million worth of stock as prices rose, with zero insider buying.

ARC Ecosystem Bets and AI Infrastructure Outweighed by Immediate Profit Gaps

Circle released several forward-looking signals during its earnings window: the ARC token completed a $222 million financing round at a $3 billion valuation, with participation from institutions including a16z, Apollo, and BlackRock; the Agent Stack platform was officially launched, aiming to expand USDC from a payment tool into the underlying settlement currency for AI agents.

However, these ecosystem developments cannot be reflected in the current income statement. Most institutions' rationale for raising price targets relies more on the legislative progress of the U.S. crypto regulatory bill, the Clarity Act, and the scale effect of USDC in payment scenarios, rather than immediate improvements in quarterly earnings.

Against the backdrop of full-year "other income" guidance remaining between $150 million and $170 million, the significant retracement in core net profit has prompted the market to reprice this business model.

Circle remains a key node connecting the traditional stablecoin economy with AI-automated payment infrastructure. As investors recognize the divergence between declining profits and expanding revenue, the forward-looking AI payment narrative is not yet sufficient to hedge against the immediate earnings gap; short-term capital will reassess CRCL's margin of safety following the earnings report.