Why This Block Analyst Expects The Recent Stock Rally To 'Evaporate'

Shares of Block Inc SQ have gained close to 30% over the past month.

However, the broader spending slowdown could persist until the first quarter of 2024, and the company’s focus on micro and small merchants could result in more wide swings in volumes in case of a downturn, according to Oppenheimer.

The Analyst: Dominick Gabriele downgraded the rating for Block from Outperform to Perform.

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The Thesis: Investors are not really focusing on adjusted EBITDA versus gross profit, Gabriele said in the downgrade note.

"We're ~9%/11% below consensus' 23/24E GP. This stems from a spending slowdown in seller combined with less Cash App monthly active adds then consensus as well as less spend per active," the analyst wrote.

“We think SQ will be a first mover for risk on; that said, we don't believe we have seen the bottom in stocks and thus we could see the recent SQ rally evaporate,” he added.

SQ Price Action: Shares of Block had declined by 4.89% to $76.84 at the time of publication Wednesday.