Circle reported its third-quarter 2025 results on November 12, which showed substantial growth across key metrics.
However, Circle stock fell nearly 7% over the past two trading sessions, as investors focused on margin pressure and rising costs beneath the headline numbers.
The USDC issuer reported a USDC circulation of $73.7 billion at quarter-end, representing 108% year-over-year growth.
Meanwhile, total revenue and reserve income reached $740 million, representing a 66% increase from the prior year period.
Net income hit $214 million, a 202% increase year-over-year, and adjusted EBITDA grew 78% to $166 million.
Circle Stock Falls on Margin Compression
Despite the strong topline performance, the crypto stock traded at $94.47 in pre-market hours on November 12, down 3.65% and extending a decline that began on November 11 when shares fell roughly 3.5%.
The earnings release showed a 39% contraction in RLDC margin, which is revenue less distribution costs as a percentage of total revenue, down approximately 270 basis points year-over-year.
Distribution costs jumped 74% as partners, such as Coinbase, held more USDC on Circle’s platform, scaling the company’s payout obligations faster than revenue growth.
Circle’s reserve return rate fell 96 basis points year-over-year to 4.2%, reflecting lower yields on the treasury securities and cash backing USDC reserves.
Reserve income still generated $711 million in the third quarter, but the declining rate signals vulnerability if short-term rates continue falling into 2026.
Management has raised its 2025 adjusted operating expense guidance to $495-$510 million, up from the previous range of $475-$490 million, citing investments in platform capabilities, global partnerships, and higher payroll taxes resulting from option exercises.
The increased expense trajectory came as investors questioned whether the crypto stock could maintain operating leverage as it scales.
Earnings Quality Concerns Drive Circle Stock Lower
Net income quality emerged as another factor pressuring Circle stock despite the 202% headline growth.
The $214 million profit in the third quarter included a $61 million income tax benefit from stock-based compensation expense, research and development tax credits, and recently enacted US tax legislation.
Circle also recorded a $48 million non-cash gain from the decrease in the fair value of its convertible debt, resulting from the lower stock price during the third quarter.
These items boosted reported earnings without improving core unit economics or cash generation from USDC operations.
The company generated $740 million in total revenue and reserve income, with $292 million remaining after distribution costs, resulting in a compressed 39% RLDC margin.
Operating expenses of $211 million included $59 million in stock-based compensation, highlighting the gap between GAAP earnings and cash profitability for the crypto stock.
Arc Network Adds Execution Risk
Circle’s earnings release highlighted the Arc public testnet launch, with over 100 participating companies. It noted that the company is “exploring the possibility of launching a native token on the Arc network.”
The Arc initiative introduces execution risk and regulatory uncertainty at a time when investors prefer operating leverage from the core USDC franchise.
The GENIUS Act’s implementation timeline remains unclear, and Circle acknowledged extensive forward-looking risks, including dependence on distribution partners, sensitivity to interest rate moves, and potential competitive pressures from yield-bearing stablecoin alternatives.
The Circle Payments Network enrolled 29 financial institutions, with 55 additional firms in eligibility reviews and 500 in the pipeline.
Annualized transaction volume based on trailing 30-day activity reached $3.4 billion as of November 7, though this remained a small fraction of overall USDC flows.
Circle maintained its multi-year through-cycle guidance of a 40% CAGR for USDC circulation, while raising other revenue guidance to $90-$100 million for fiscal 2025, up from the previous $75-$85 million range, based on stronger subscription and transaction revenue trends.
Markets weigh the margin compression, expense growth, and rate sensitivity more heavily than the USDC adoption metrics, particularly as a potential 50-100 basis point decline in short rates could meaningfully impact reserve income against the higher operating expense base.
The crypto stock’s decline reflected investor concern that falling rates could compress the reserve income engine that drives Circle’s profitability model.