We initiate coverage of stablecoin issuer Circle Internet Group (CRCL) with a Neutral rating and an $83 12-month price target, based on 60.0x Q5-Q8 adjusted earnings, implying 54% downside. CRCL is a unique asset in the public markets, as the only pure play crypto-native company that has potential upside from expansion into very large existing fiat markets, without the direct price volatility inherent to crypto trading. CRCL’s main product, USDC, is a stablecoin meant to represent USD on blockchain.

We model a 40% USDC supply CAGR from 2024-27E, and 26%/37% CRCL revenue/adj. EPS growth CAGRs. Our healthy growth forecasts factor in USDC share gains and crypto ecosystem expansion, without requiring material USDC penetration of new TAMs. Currently, USDC’s main use case is within the crypto ecosystem, and, to a lesser extent, dollar access (holding USD against FX devaluation). Together, pending global stablecoin regulation that should favor adoption of compliant stablecoins like USDC, as well as continued new partnerships should drive continued market share gains. USDC growth should be supplemented by crypto ecosystem growth, to which USDC supply correlates with a 52% R2. We expect adjusted pre-tax margins to rise ~11.5pp from 2024-27E to 53%, as the company delivers leverage on a ~90% fixed cost base. We model a 37% 2024-27E bottom-line CAGR, ahead of 7% for peers.

As we do not model this currently, USDC penetrating other TAMs could represent attractive upside optionality, although could be partially offset by take rate pressure. We see new USDC use cases, e.g., cross-border payments, other forms of payments, and collateral in fiat trading, although potentially partially offset by take rate compression from: 1) rate cuts; 2) cannibalization of USDC with yield-bearing alternatives over time; and 3)incentivization through distribution expenses of an increasing % of USDC to grow circulation.

We view CRCL’s business and growth attractively, but valuation appears elevated. Thus, we rate the stock at Neutral, with downside to our price target (PT). We value CRCL using a P/E (on adjusted Q5-Q8 EPS, ex stock-based comp [SBC]), given sustainable profitability in our model. We apply a target P/E of 60.0x, driven by CRCL’s premium long-term growth profile, and vs. peer NTM P/Es.