What's Going On With Block Shares?
Block SQ shares are making headlines for all the wrong reasons today, with short-seller Hindenburg Research raising red flags surrounding the company’s operations.
Here’s what the short-seller had to say – “Our 2-year investigation has concluded that Block has systematically taken advantage of the demographics it claims to be helping. The “magic” behind Block’s business has not been disruptive innovation, but rather the company’s willingness to facilitate fraud against consumers and the government, avoid regulation, dress up predatory loans and fees as revolutionary technology, and mislead investors with inflated metrics.”
That’s a heavy statement.
The stock got punished in retaliation to the report’s release, with Block shares plunging in today’s pre-market session.
Hindenburg claims that fraud is a major problem within the company’s Cash App platform, with the short-seller also not agreeing with SQ’s practice of ‘blacklisting’ users suspected of illegal activities rather than outright banning them from the platform altogether.
“Our research indicates, however, that Block has wildly overstated its genuine user counts and has understated its customer acquisition costs. Former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual.”
Clearly, Hindenburg is not a fan.
As we can see in the chart below, the company’s revenue was greatly amplified during the initial phases of the pandemic in 2020.
Image Source: Zacks Investment Research
Still, despite the report and shares nosediving in the pre-market session, SQ shares have temporarily bounced from their $56.50 per share intraday low, finding some buyers.
Of course, Block isn’t the first that Hindenburg has raised alarms on, with companies such as Welltower WELL and Establishment Labs ESTA also receiving negative coverage from the short-seller over the last year.
Interestingly enough, Establishment Labs shares are up more than 35% since the short-seller’s report on October 19th, 2022, widely outperforming the S&P 500.
Image Source: Zacks Investment Research
And since publishing their short report on Welltower on December 7th, 2022, shares are up roughly 3%, again outperforming the general market.
Image Source: Zacks Investment Research
SQ shares have already declined significantly in value over the last two years, down more than 70%.
Image Source: Zacks Investment Research
It raises a valid question, whose side are you on?
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Block, Inc. (SQ) : Free Stock Analysis Report
Welltower Inc. (WELL) : Free Stock Analysis Report
Establishment Labs Holdings Inc. (ESTA) : Free Stock Analysis Report
