An Extremely Profitable Business Plans to Go Public. What Investors Need to Know.

On May 27, Circle Internet Group updated its filings to become a publicly traded company. It's possible that investors haven't heard of Circle. But cryptocurrency enthusiasts are likely quite familiar with Circle's stablecoin USD Coin (CRYPTO: USDC), the second-largest stablecoin by market cap.

A stablecoin is an interesting class of cryptocurrency. The price of Bitcoin (CRYPTO: BTC), for example, recently increase to an all-time high because its price changes relative to the U.S. dollar. It has a mechanism that controls the circulating supply of Bitcoins. And if demand exceeds this supply, then the price goes up.

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Stablecoins such as USDC don't work that way. Those wanting to use stablecoins can go to a cryptocurrency exchange such as Coinbase (NASDAQ: COIN). Once there, they deposit real dollars and exchange them for stablecoins.

For every dollar they put in the system, a corresponding stablecoin is issued. This way, the price of each stablecoin should always be $1, rather than fluctuating like Bitcoin. Moreover, users should be able to exchange stablecoins back for dollars if and when they choose.

Circle is a stablecoin issuer, and this business model can actually be extremely profitable. The costs to operating a stablecoin system are relatively low. Meanwhile, the stablecoin issuer needs to keep reserves in case users redeem their coins. These reserves turn into stable interest and investment income.

The largest stablecoin entity is Tether, with a market value of more than $150 billion. It's not publicly traded, but it still reports financials from time to time. In the first quarter of 2025, it reported an operating profit of $1 billion, it had excess reserves of $5.6 billion, and its management is busily investing in other business ventures such as renewable energy.

In other words, Tether seems to be a cash cow business with low need to reinvest in the business, freeing it to invest in other opportunities. This favorable stablecoin business model is why investors should keep an eye on Circle.

Why aren't Circle's profits higher?

Let's start with some concrete numbers. In the first quarter of 2025, Circle's total revenue rose 58% year over year to $579 million. And the company had operating income of $93 million, which was up 78%. That's good growth. And the table shows progress during the past three years.

Data source: Circle's filings. Table by author. *Revenue from continuing operations.

Circle had a Q1 operating margin of 16%, which is good. But the one thing apparent from the table is that the company has traded profitability for growth. Growth skyrocketed in 2023, whereas its gross margin took a significant step back. What gives?

As it turns out, cryptocurrency exchange Coinbase helped launch USDC originally, so it's long had a vested interest. The company perceived that the stablecoin needed help, and so it reworked its partnership with Circle in 2023. Coinbase actively began pushing for USDC's growth while taking a larger cut of the profits.

In other words, Circle would likely be far more profitable if it didn't partner with Coinbase. But otherwise, it might not be as big as it is today. It's something to be aware of, but the partnership is probably a net benefit.

Will Circle stock be a good investment?

At the risk of oversimplifying things, high-growth, profitable businesses often make good investments. For this reason, I believe investors should watch Circle Internet Group stock once it goes public. But there are some risks to consider as well.

First and foremost, Circle profits from user deposits. Although this is easy money, a lot of it has to do with interest rates, which are outside the company's control. Supposing rates trended lower, it would lower Circle's interest income. It's theoretically possible to see adoption go up and interest income go down.

Second, as of this writing, Tether's market cap is $153 billion, according to CoinMarketCap, whereas USDC is only $61 billion. This suggests stablecoin users prefer Tether. In fact, without Coinbase's big push in 2023, it's debatable how big USDC would be. So it's fair to question the sustainability of its growth from here.

Finally, legislation regarding stablecoins is always a concern. The current political atmosphere in Washington appears favorable to cryptocurrency. But the market could benefit from legislative clarity, and there's no guarantee which way things could go.

However, taking this all into consideration, I believe that Circle stock could be a good long-term investment. This assumes that cryptocurrency adoption continues, Coinbase stays in its corner, and interest rates don't plunge overnight, which I believe are reasonable assumptions.

For these reasons, I'll be watching Circle as it goes public.

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.