Morgan Stanley Cuts Price Target to $38: Circle's Earnings Expose the Awkward Position of the "First Stablecoin Stock"

Since OpenUSD entered the stablecoin arena, Circle's market position has faced constant challenges, with its stock price under sustained pressure. On August 3, Morgan Stanley was particularly blunt—slashing its price target from $106 to $38 and downgrading its rating from Neutral to Underweight. Yesterday, Circle released its latest earnings report, and this earnings call happened to address some of the market's most pressing concerns.

But before diving into the numbers, one question needs to be answered first: What exactly is Circle afraid of?

1. Core Challenge: 95% of Revenue Hinges on "People Leaving Their Money Idle"

Circle's current business model boils down to one sentence: the vast majority of its revenue comes from interest generated by USDC reserves.

This model has two critical sensitivities. First, short-term dollar interest rates—Fed rate cuts would directly compress reserve yields. Second, USDC circulation—channels like Coinbase and Binance are taking an increasingly larger cut. Meanwhile, the highly anticipated new businesses such as payments, settlement, and network services have yet to generate meaningful revenue. OpenUSD's entry has clearly intensified the pressure on the revenue side.

With this backdrop in mind, many of the numbers in this earnings report are hardly surprising.

2. Earnings Breakdown: A Decidedly "Mediocre" Report Card

Q2 total revenue came in at $701.3 million, up 7% year-over-year but only 1% quarter-over-quarter, missing market expectations of $713 million.

The structural breakdown makes the problem even more evident. Q2 reserve revenue was $668 million, accounting for approximately 95% of total revenue—up from 94% last quarter, rising rather than falling. Other revenue declined from $42 million to $34 million, with its share dropping from roughly 6% to under 5%.

The profit side fared slightly better: EPS of $0.18 edged past market expectations of $0.16, while the RLDC margin held firm at 41.2%, roughly flat with last quarter.

In short: this earnings report is decidedly mediocre, further highlighting the challenges Circle currently faces. The revenue structure hasn't improved—if anything, its dependence on interest income has deepened.

3. The CEO's Response: Renewing the Coinbase Agreement, but Missing the Real Pain Point

On the earnings call, the CEO did share some positive news: Circle's agreement with Coinbase has been renewed under existing terms, ensuring USDC maintains its central position across Coinbase's entire product ecosystem.

But this response feels somewhat inadequate—it secures the existing base without addressing the core issue. For Circle to break through, it must shift from "earning money from users holding USDC" to "earning money from USDC being used." The company has repeatedly emphasized payment networks, enterprise services, Arc, and AI agent payments, but these businesses have yet to reach meaningful revenue scale.

4. The Long-Term View: Before a New Narrative Emerges, Patience Matters More Than Conviction

In the short term, no matter how you analyze it, Circle's stock price lacks upward momentum. What about the long term?

Circle's earnings are currently far too concentrated in a single stream, and so-called AI payments, as things stand, won't reach scale anytime soon—but that's precisely the direction it must invest in long-term to break through. While it has secured its banking charter, there's only so much it can do with it: for now, it essentially enables self-custody and saves on custody fees. Even if it opens custody services for other institutions, it wouldn't fundamentally change its profitability.

What Circle needs most right now is to find a path to charging transaction fees while increasing USDC usage. Until this new narrative truly materializes, long-term investment value will require patient waiting.

5. Final Thoughts

The Circle case serves as a reminder to all investors: there are plenty of stocks out there like it—single-dimensional earnings structures, no short-term catalysts, and unfulfilled long-term narratives. The common trait of such names is that every rate decision, every earnings report, and every piece of competitor news can trigger sharp swings in the stock price, with the direction nearly impossible to predict in advance.

When facing stocks like these, retail investors tend to make two mistakes: going all-in on one direction, or stubbornly holding after getting stuck. The mature approach is to define your risk boundaries before entering a position.

This is precisely the problem BIT's options buying and margin trading features aim to solve. Options buying is well-suited for trading such high-volatility names: whether betting on a rebound or speculating on further downside, you can participate with limited capital, and your maximum loss is locked in at the premium the moment you place the trade—if you're wrong, the loss is clear and defined; if you're right, your gains amplify with the volatility.

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Disclaimer: This article was written by a special analyst from BIT's US stock business. The author's views represent personal analysis only and do not reflect the official views, investment advice, or positions of BIT and its affiliates. This article is for market information sharing and educational purposes only and does not constitute any investment advice, research report, or recommendation to buy or sell securities. The securities, ETFs, and digital assets mentioned herein serve only as market case studies and do not represent BIT's recommendation to buy, sell, or hold such assets. Investing involves risks, and markets may experience price fluctuations or even loss of principal. Investors should make independent judgments based on their own risk tolerance and consult professional financial advisors when necessary.