Circle (CRCL.US) relies on ARC pre-sales to support performance USDC circulation pressure to cut 5% of employees

According to Woofun AI, Circle (CRCL.US) released its financial report for the third quarter of 2026 before the US stock market on November 4. Both revenue and earnings per share were higher than market expectations. This is the first time that the company's results have fallen short of expectations for two consecutive quarters.

Despite the impressive financial data, the stock price reaction was lackluster. It finally closed at $76.12, with a total market capitalization close to $20 billion. Market sentiment quickly returned to rationality after a brief rise, reflecting investors' cautious attitude towards the quality of growth. Behind this contrast is a strong hedging between concerns about core business fundamentals and one-time revenue from new businesses, making this report card show complex structural characteristics rather than simply a signal of a reversal of performance. The deeper contradiction is that although overall financial indicators have improved, the core driving force for growth does not come from traditional stablecoin reserve earnings, but rather relies on pre-sale of new public chain tokens that have not yet fully matured. The sustainability of this dependency path has become the focus of market attention.

At the same time, while expanding new businesses, the company is streamlining personnel, further intensifying speculation about its strategic focus, making this financial report not only a list of financial data, but also a microcosm of Circle's strategic transformation during the heated stablecoin competition.

The core variable that drove revenue beyond expectations was the huge one-time revenue from the pre-sale of ARC, the native token of its public chain Arc. Circle's third-quarter total revenue reached US$865 million, up 17% year over year, with net profit from continuing operations of US$226 million, adjusted EBITDA of US$317 million, and diluted earnings of $0.84 per share, which fully exceeded the market's previous expectations of US$802 million in revenue and $0.40 per share.

Other revenue reached $207 million, surging 627% year over year, with $182 million directly from ARC token pre-sales, according to data compiled by Woofun AI. The ARC pre-sale was completed in two rounds, with cumulative financing of approximately US$242 million. CFO Jeremy Fox-Geen explained in a conference call that since revenue was confirmed according to performance milestones, approximately 75% of pre-sale revenue was confirmed in the third quarter with token delivery and the launch of the Arc mainnet. This revenue did not have to bear the corresponding distribution costs and directly boosted profit levels. Revenue after distribution (RLDC) reached US$453 million, a year-on-year increase of 55%, and the RLDC profit margin jumped from 41% in the second quarter to 52% (including ARC pre-sales). The adjusted EBITDA is equivalent to 70% of RLDC, about 50% after excluding the impact of ARC pre-sale; if revenue is used as the denominator, the two scales are 36.6% and 15.6%, respectively. This gap reveals the fragility of the current profit structure, where high profit margins are highly dependent on infrequent one-time capital injections rather than improvements in daily operational efficiency.

However, when the ARC pre-sale aura was removed, Circle's main business revenue and profit actually showed a year-on-year decline. According to financial data, revenue for the third quarter excluding pre-sales was about US$683 million, down about 8% year on year and lower than the level of the previous two quarters; adjusted EBITDA was about US$135 million, down about 21% year on year; profit before tax was only about US$46 million, a record low during the year.

This decline is mainly due to a contraction in reserve revenue. Reserve revenue for the third quarter was US$658 million, down 8% year on year, and the return on reserves fell 61 basis points year on year to 3.54% year on year. Although average circulation increased 8%, it did not fully offset the negative impact of falling interest rates.

Additionally, revenue from other non-presale businesses was only $25 million, down 11% year over year, which Fox-Geen attributed to fewer monetized blockchain integration projects during the quarter. Profit margins were also under pressure. Excluding pre-sale RLDC profit margin was 39.7%, down about 150 basis points from the second quarter; net reserve margin fell about 80 basis points month-on-month to 37.8%. Fox-Geen pointed out that this was due to the first full quarter of the split arrangement with Hyperliquid. The offset was the increase in USDC holdings on its own platform to $13.9 billion, an increase of 36% year over year, and its share of circulation rose to 18.1%. Even when pre-sale revenue is included, net profit increased by only 5% year-on-year, mainly affected by the high income tax revenue base of about $61.3 million in the same period last year. There are obvious signs that the hematopoietic capacity of the main business is weakening, reflecting that the profit margin of the traditional stablecoin business model is being compressed during the downward cycle of macroeconomic interest rates.

In the context of the return on reserves fluctuating with interest rates, circulation scale became a key indicator Circle could actively seek, but this indicator showed poor performance in the third quarter. At the end of the third quarter, USDC's circulation volume was 73.9 billion US dollars, the same as the same period last year, and the average circulation for the quarter was even lower than in the second quarter.

Meanwhile, the total supply of stablecoins increased 8% year over year to about US$274 billion, causing the USDC market share to fall to 27%, down 183 basis points year over year, and the decline was significantly larger than in the second quarter. The competitive pressure mainly comes from Open USD, a revenue-sharing stablecoin announced at the end of June and officially launched at the end of September. The initiators include more than 140 institutions such as Visa (V.US), Mastercard (MA.US), and Stripe. At the time of launch, the number of partners had expanded to more than 200, which raised concerns about the erosion of USDC's distribution advantage. CEO Jeremy Allaire said during the conference call that Circle will continue to increase its distribution investment and acknowledged that there is a trade-off between partner incentives and increased circulation. The latest case is a five-year agreement signed with Binance. Binance also invested $100 million in Circle. Fox-Geen said the renewal did not involve upfront costs.

Despite Binance's recent security incident, Allaire notes that Binance has recorded a net inflow of approximately $2.5 billion over the past 24 hours. Allaire attributed the flat circulation to the weak crypto market, but emphasized that usage was still growing: USDC carried 79% of the stablecoin's trading volume with 27% of the supply share (66% in the same period last year), and on-chain transactions reached $13.9 trillion during the quarter, up 49% year over year, and minting and redemptions totaled $208 billion, setting a quarterly record. Circle is still maintaining the target of 40% compound annual growth rate of circulation over many years. Fox-Geen expects usage growth to drive a recovery in circulation over the long term, indicating that the company is shifting from simply pursuing scale to pursuing strategic adjustments in activity and penetration rate.

In the same quarter, when revenue from the main business declined, Circle made organizational restructuring, laying off about 5% of employees, and calculated restructuring expenses of US$9.15 million, mainly cash expenses such as severance payments. Officials said the purpose of this adjustment is to match the organizational structure with the company's operating model and strategic priorities. According to Circle's annual report, the company had approximately 1,100 employees as of the end of 2025. According to this estimate, the layoffs involved about 55 jobs.

Notably, the layoffs did not result in cost reduction. Fox-Geen said the adjusted operating expenses increased year over year, mainly due to investment in Arc and AI related infrastructure, as well as marketing expenses, including Chelsea sponsorship. Marketing expenses doubled year-on-year to $11.3 million in the third quarter, and IT infrastructure expenses increased by about 90% year-on-year, showing that while cutting labor costs, the company drastically increased capital expenditure on technology infrastructure and brand influence.

Additionally, Circle announced in September that CFO Jeremy Fox-Geen will step down before the end of the year, and the company is looking for a successor. This high-level change occurred at a critical point in the company's strategic transformation and may indicate further adjustments in future financial strategies and management priorities. Investors need to pay attention to the specific measures for cost control and revenue diversification after the new CFO takes office.

On the new business side, Allaire says Arc is Circle's biggest platform bet since USDC. The Arc mainnet was launched on September 16, and is operated by 11 founding verification nodes, with more than 100 access institutions and applications, including financial institutions such as BNY (BNY.US), HSBC (HSBC.US), and Visa, as well as DeFi protocols such as Aave and Uniswap. As of late October, the on-chain assets were about 1.5 billion US dollars. Within three quarters, Circle completed the genesis minting of 10 billion ARC, becoming the first publicly traded company to mint a network token for the new L1 blockchain, of which Circle holds 25%.

Arc plans to transition to PoS in 2027, and Fox-Geen introduced three monetization methods: staking rewards are expected to be the most important recurring revenue; Circle will stake ARC holdings and receive rewards as verification nodes after PoS; companies may also selectively sell ARC and directly include profit; ARC distributed to ecosystem participants is included in revenue based on market value and equal distribution costs. He pointed out that according to US accounting standards, the value of ARC held by Circle is only recognized when it is sold or distributed, and is not currently reflected in the statements.

According to Circle's filing with the SEC, the ARC lockdown period for second-round pre-sale investors is at least one year after Arc switches to PoS, until 2028 at the earliest, and Circle may be required to refund pre-sale payments if key milestones are not reached. In the context of the Binance theft, Allaire uses security as a selling point for Arc, believing that Arc operated by known institutions can better meet the security requirements of financial institutions than public chains that do not require permission, and is trying to build a differentiated competitive advantage through institutional endorsement.

The payment business CPN became another highlight. Its annualized payment volume based on the past 30 days reached $41.3 billion at the end of the third quarter, an increase of more than 15 times over the previous year and nearly 3 times higher than at the end of June. As of October 30, that figure had surpassed $58 billion. In September, Circle announced the acquisition of Singaporean cross-border payments platform Tazapay with $400 million in Class A shares. The deal is expected to close in 2027. Tazapay's annual payments volume exceeds $25 billion, and about 60% already involves stablecoins, which will significantly strengthen Circle's presence in the Asian market. Allaire said that Asia is the region where the Circle platform is most active, and the company is in touch with the Hong Kong government and is confident of entering Hong Kong's overseas stablecoin regulatory framework. Fox-Geen revealed that the company has begun charging for some CPN traffic and expects CPN to contribute significant revenue in 2027 after Tazapay's merger.

However, Allaire stressed that Circle's goal is to reduce the unit cost of payments, not replicate the rate structure of the traditional payment industry, and aims to gain market share through scale effects and efficiency improvements rather than short-term high rates. This strategy helps establish a long-term moat in the midst of fierce payment competition, and also lays the foundation for future revenue diversification.

Looking ahead to the full year, Circle remains unchanged. Other revenue guidelines for the full year were $310 million to $330 million, and RLDC's profit margin was 41.7% to 43.7%, all including confirmed ARC pre-sale revenue. Based on this calculation, other revenue after excluding ARC in the fourth quarter was around $30 million to $50 million, up from $25 million in the third quarter, and Fox-Geen is expected to pick up as blockchain integrations increase. In terms of profit margin, the RLDC profit margin for the first three quarters was about 45.5%. If the whole year falls within the guideline range, according to a rough estimate of revenue of about 700 million US dollars for the fourth quarter, the RLDC profit margin for the fourth quarter is about 29% to 38%, which is lower than the level of about 40% in previous quarters.

In response to questions from Goldman Sachs (GS.US) analysts, Fox-Geen confirmed the decline in profit margins in the fourth quarter, saying that after excluding ARC, the full year's RLDC profit margin would be close to the midpoint of the original guideline of 38% to 40%. The decline was mainly due to Binance's incentive arrangement being fully included in a quarter for the first time. The fourth quarter was also the first quarter to be fully included in the Hyperliquid split arrangement and the renewed Binance partnership. Fox-Geen called these two partnerships investments in distribution, aimed at driving USDC circulation and RLDC growth over the long term. On the cost side, adjusted operating expenses guidance for the full year remained at $570 million to 585 million, and is expected to be around $149 million to $164 million in the fourth quarter, up from $139 million in the third quarter.

In response to questions from retail shareholders about non-interest income contributions, Allaire said that the monetization of CPN, the integration of Tazapay, and Arc's shift to PoS will jointly drive revenue diversification, marking Circle's transformation from a single reserve revenue model to a diversified Web3 infrastructure service provider. Although this process is accompanied by short-term profit margin fluctuations, it will help reduce dependence on macro-interest rate policies and enhance resilience to risks in the long run.