Why Circle Internet Group Slumped by 11% This Week
Key Points
The company is paying $400 million in stock to acquire Tazapay.
This is a Singapore-based business that specializes in cross-border, B2B commerce.
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Circle Internet Group (NYSE: CRCL) had a week to forget, as far as its equity was concerned. After the cryptocurrency developer announced an acquisition on Tuesday, many investors bailed from its stock. Ultimately, Circle shrank by 11% over the Labor Day-shortened trading week, according to data compiled by S&P Global Market Intelligence.
Paying for Tazapay
Before market open Tuesday, Circle divulged that it had signed a definitive agreement to acquire Singapore-based Tazapay. The Asian company specializes in cross-border business-to-business (B2B) payment technology.
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Speaking of payments, Circle has agreed to hand over $400 million in newly issued common stock to purchase its asset-to-be.
In the press release trumpeting the deal, Circle said that the take-up and acceptance of USDC, the prominent stablecoin it developed, will be enhanced by its ownership of Tazapay.
It quoted its co-founder and CEO, Jeremy Allaire, as saying that "stablecoin settlement is becoming core infrastructure in the global economy, and combining USDC with Tazapay's world-class banking relationships, local payout rails, and institutional customer base will accelerate worldwide USDC adoption."
400 million reasons for skepticism
I'd say that's accurate, assuming Circle can effectively integrate Tazapay with its business. However, there was clear skepticism about the deal from both investors and analysts tracking Circle's stock. One of the latter, Mizuho's Dan Dolev, felt compelled to publish an update reiterating his underperform (read: sell) recommendation and $45-per-share price target.
According to reports, Dolev doubts that owning Tazapay will make much of a difference to Circle's performance, and the Singapore company's volume and reach aren't considerable. It also doesn't solve the increasing problem of competition, as in his view, stablecoins are rapidly becoming commoditized.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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