The Hindenburg Research investment fund has published a special report, announced since yesterday, taking a negative view of fintech business Block (SQ.US), run by Jack Dorsey (co-founder of Twitter and Bitcoin fan). The stock is losing today more than 19%. Previously, Hindenburg took a swipe at India's Adani Group, leading to its shares crashing in Q4 2022. At the time, he pointed to creative accounting and a variety of irregularities that helped Adani make a fortune in the commodities and raw materials markets. What revelations did Hindenburg Research analysts share with the market this time?
- The Hindenburg report highlighted that Block's business does not offer any financial innovation against its competitors although it claims to. The analysts pointed out that the company avoids so-called intercharge payments contrary to Congressional law by diverting payments through small banks, to the disadvantage of customers (higher fees);
- According to the report, the announced 'buy now, pay later' afterpay service does not add any value and does not look favourable to users due to very high late payment costs. In 2022, the year of Afterpay's acquisition, it lost USD 357 million, up from USD 184 million in 2021;
- According to the analysis, Block allegedly misled investors on key business metrics to drive share growth and profits from selling insiders at inflated prices during the pandemic share price rally (approximately US$1bn in shares sold);
- Hindenburgh Research pointed to threats from competitors like Alphabet, Apple, Paypal or Venmo and Zelle, which are rapidly expanding payments via phones (Apple increased Apple Pay activations from 20% in 2017 to over 70% in 2022 and leads in digital wallet market share).
- Analysts says tha Block's business is valued like a highly profitable company and is overvalued compared to other fintech companies (P/B ratio around 13 a.e.). The fund sees around 50-75% potential for the company's shares to fall.
The stock has opened today at levels last seen in March 2020 and the 2022 crypto lows. Source: xStation5
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