Mizuho has made notable adjustments to Circle Internet Group's outlook, downgrading it from Neutral to Underperform and slashing its price target from $85 down to $50. The rationale behind this shift lies in the looming competition posed by Open USD, which has the potential to further compress profit margins for stablecoins.
The introduction of Open USD allows its partners to share reserve earnings, thereby disrupting the existing revenue model behind Circle's USDC. As noted, this new initiative enables participants including prominent names like Coinbase and Mastercard to mint and redeem the stablecoin without incurring fees, challenging Circle’s global distribution strategy.
Furthermore, Circle faces heightened margin pressures not only from Open USD but also from evolving revenue-sharing agreements, particularly with platforms like Hyperliquid. Following a significant recent federal approval, analysts at Mizuho are cautious, suggesting that these dynamics might strain Circle's business further.
A report from CoinDesk highlights that analysts led by Dan Dolev warned that Open USD could fundamentally reshape Circle's operations by altering how income from reserves is allocated to distributors. As of the time of the report, Circle shares were trading around $62.63.
Mizuho has also raised concerns regarding Circle's projected earnings for 2027, increasing its expected distribution and transaction expenses from 64% to 73% while cutting its adjusted EBITDA forecast significantly from $1.09 billion to $699 million, well below the market consensus.
The impact of rising interest rates might bolster reserve income, but Mizuho posits that this won't completely alleviate the financial pressure stemming from shifting stablecoin economics. The primary worry lies in how effectively Circle can retain yields after compensating its distribution partners.
Open USD was initiated on June 30 by Open Standard and has participation from over 140 companies. This ecosystem provides a no-cost means for businesses to engage with the stablecoin, setting a precedent that contrasts sharply with Circle's existing financial model. Circle's distribution partners may now face a dilemma regarding support for a rival product while still distributing USDC.
In addition, Mizuho highlighted the importance of Circle’s partnership with Coinbase, which is set for renegotiation this August. Coinbase's involvement in the Open USD project could strengthen its position in future discussions, potentially skewing terms in its favor.
This development comes on the back of similar predictions from JPMorgan, which also revised down earnings forecasts for both Circle and Coinbase after the new revenue-sharing terms were established. According to them, these changes might dilute the reserve income for both companies despite any uptick in USDC usage.
Circle continues to advance its infrastructure concerning USDC, navigating through a challenging financial landscape as competitors emerge.
This is informational material and not a financial recommendation.
