After Buying Circle Through a 42% Drop, Cathie Wood Says Analysts Cannot Fathom It

Cathie Wood has continued to purchase Circle stock despite a 42% decline over the past year. She explained why in a Sunday interview. Wall Street analysts who made their careers on Visa and Mastercard cannot comprehend Circle, she argued. Circle provides USDC, a digital dollar backed by cash and short-term US government debt. Wood is the head of ARK Invest, and Circle is now the largest cryptocurrency investment in her flagship fund.

She responded to a chart from Artemis data, which showed that analysts believed the market had changed its view on who was making money from stablecoins. The chart compared Visa, Mastercard, and Circle over the past year. Visa's stock increased by about 5%, Mastercard by around 1%, while Circle lost 42%. Although Circle has risen 84% since its IPO, the one-year chart demonstrates how poorly public equity markets can perform in the short term.

Many financial services analysts have built their long-term track records on $V and $MA and cannot understand Circle, the disruptor, Wood claimed. Wood referenced historical data, noting that Mastercard has increased 150 times since it went public and Visa 33 times. When the analysts advised clients to buy those dips, they looked brilliant.

The technology sector is now reshaping payments, and Circle will benefit, Wood suggested. She calculated the multiples correctly but her Circle figure is inaccurate. Circle's IPO price was $31, and it closed at $87.98 on Friday, representing an 184% gain, not 84% as previously stated. The sell-side is not ignoring Circle, which weakens her argument.

Of the 21 analysts covering Circle, 11 rate it as a strong buy, two as a buy, and three as a sell. The price targets range from $37 to $173, a 4.7-fold difference. The average target is $98.61. The large discrepancy in analysts' opinions on Circle stems from the fact that much of its revenue comes from interest on reserves, which declines when interest rates fall.

The rest of the income depends on how widely digital dollars are used. Circle's revenue grew by approximately 37%, and the company is profitable after a Q2 earnings surprise in early August. Despite this, its market value has fallen 30%. Competition is also complicating the picture. Circle is developing a four-layer financial stack on its Arc blockchain.

An alternative stablecoin consortium, Open USD, comprising more than 140 firms, also aims to use the same infrastructure. Wood is not hedging her bets. ARK's flagship fund held 3,931,968 Circle shares on Friday, worth $329 million and 5.14% of the portfolio, surpassing its Coinbase stake. While the future of Circle remains uncertain, Wood's money is betting on what the $37 and $243 targets imply.