Photo by Austin Distel on Unsplash
 

Block shares have plunged after a short-seller accused the company of facilitating criminal activity and inflating its figures.
 

Hindenburg goes short on Block

Block, the company formerly known as Square, is down 20% today after investment research firm Hindenburg Research revealed it is short on the stock as it published a report that has made a wave of allegations against the payments company.

‘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 a revolutionary technology, and mislead investors with inflated metrics,’ the report claims.

The accusations would be seismic if true. Hindenburg claims Block has ‘widely overstated its genuine user counts and has understated its customer acquisition costs’ and goes as far as to say that it has embraced criminals and facilitated illegal payments. It also describes its acquisition of Buy Now, Pay Later firm Afterpay as ‘flopping’ and says Block’s valuation is far too high compared to its fintech rivals, especially as competition is becoming more fierce.

‘In sum, we think Block has misled investors on key metrics and embraced predatory offerings and compliance worst-practices in order to fuel growth and profit from facilitation of fraud against consumers and the government,’ Hindenburg summarized.

‘We also believe [CEO] Jack Dorsey has built an empire—and amassed a $5 billion personal fortune—professing to care deeply about the demographics he is taking advantage of. With Dorsey and top executives already having sold over $1 billion in equity on Block’s meteoric pandemic run higher, they have ensured they will be fine, regardless of the outcome for everyone else,’ Hindenburg said.

You can find the Hindenburg report here.

Markets are now awaiting a response from Block…

Where next for SQ stock?

Block shares have plunged to their lowest level in over four months following the release of the Hindenburg report.

We can see it has already dropped below the December floor of $59, which could provide some support if losses ease during today’s session. The RSI is now on the cusp of entering oversold territory which may limit further losses. If not, then the door is open to the $53.40 level of support from last October.

The immediate job is to try and reclaim the ground lost today but $69 - the top saw in December, the bottom in March, and in line with the 200-day moving average - would be a sensible initial target for any recovery.

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