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Monday, September 26, 2022

Why Block Stock Was Cratering This Week

What happened

There was a time, not long ago, when fintech company Block (SQ -5.92%) was a real star on the stock exchange. But that was before worries grew about the global economy, rising interest rates began to spook would-be borrowers, and investors started to bail from companies in (or adjacent to) the tech sector.

Compounding this dynamic, not one but two analysts in recent days downgraded their recommendations on Block stock. Consequently, as of Thursday’s market close, the company’s shares had declined by almost 14% so far this week, according to data compiled by S&P Global Market Intelligence.

So what

The first of the two blows was the hardest, as it came from longtime Block bull Dan Dolev of Mizuho (MFG 1.30%). His new recommendation is neutral, down from the previous buy, a change accompanied by a steep price-target cut to $57 per share from $125.

Dolev’s move is based on a number of factors, specifically what he terms “user fatigue,” a decline in the growth of inflows, improving competition in the point-of-sale retail segment, and faulty execution with the fintech company’s buy now, pay later (BNPL) efforts.

He would probably get little argument from Andrew Bauch of SMBC Nikko Securities. Similarly, Bauch lowered his recommendation from outperform (buy, in other words) to neutral, and chopped his price target drastically. This now stands at $70 per share, where before it was $120.

In his latest research note, Bauch expressed another concern. Writing about management’s decision early in the pandemic to forgo traditional guidance, the analyst wrote, “With no [full-year] or medium-term guide, modeling 2023 and 2024 is more difficult in the case of SQ than nearly any other name in our coverage.”

Now what

Block certainly has to contend with many challenges. In addition to the ones itemized above, we can add others such as the company’s recent plunge into cryptocurrencies. That, combined with worries about consumer spending during the anticipated coming economic slowdown, will likely limit this stock’s upside in the proximate future.


Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Block, Inc. The Motley Fool has a disclosure policy.


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