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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.

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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.

Zacks Investment Research
Zacks Investment Research


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.

Zacks Investment Research
Zacks Investment Research


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.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

SQ shares have already declined significantly in value over the last two years, down more than 70%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

It raises a valid question, whose side are you on?

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Block, Inc. (SQ) : Free Stock Analysis Report

Welltower Inc. (WELL) : Free Stock Analysis Report

Establishment Labs Holdings Inc. (ESTA) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research