Why Block Stock Is Nosediving Today

Block, Inc. SQ shares are trading lower after Hindenburg Research issued a short report on the stock.

What To Know: On Thursday, prominent short-seller Hindenburg Research issued a report alleging that Block is facilitating fraud through a lack of compliance controls on its flagship product, CashApp.

After a two-year investigation, Hindenburg Research claims that Block has overstated its genuine use counts and has understated its customer acquisition costs. Hindenburg says former employees estimate that 40%-75% of accounts that they reviewed were "fake, fraudulent, or multiple accounts connected to the same individual."

Hindenburg also alleges that Cash App suppressed internal concerns and “ignored user pleas for help as criminal activity and fraud ran rampant on its platform.”

Hindenburg noted Block reported a 1% year-over-year revenue decline and a GAAP loss of $540.7 million in 2022, saying analyst outlook expects future unprofitability, and the company has warned it “may not be profitable.”

Hindenburg also expressed valuation concerns, noting Block is valued at an EV/EBITDA multiple of 60 despite threats from competitors such as Zelle, Venmo/PayPal, and payment solutions from tech titans such as Apple and Google.

Due to these fraud allegations, valuation multiples, and questions of profitability, Hindenburg states that it sees a downside between 65%-75% in Block shares.

Block provides payment-acquiring services to merchants, along with related services. The company also launched Cash App, a person-to-person payment network.

According to data from Benzinga Pro, Block shares were down 12.1%, trading at $63.88 at the time of publication. The stock has a 52-week high of $148.99 and a 52-week low of $51.34.