Analyst Pulls Blocks ‘Buy’ Rating on ‘Bitcoin Fix’
Shares of Block ( SQ ), the payments company started by former Twitter CEO Jack Dorsey, fell nearly 7% Thursday after an analyst downgraded the stock.
Mizuho Securities analyst Dan Dolev, an early proponent of the company, changed his “buy” rating on $SQ to “neutral,” citing “user fatigue” and “bitcoin fixation” in a note published early Thursday.
“SQ still has enormous potential, but it is not being realized,” Dolev said.
The stock lost 6.8% to $55.40 a share in midday trading Thursday, far higher than losses in the Nasdaq (down 1.5%) and the S&P 500 (down 0.84%).
Growth in Cash App, the company’s consumer payments app, is slowing, according to Dolev, while customer acquisition costs continue to rise. On the seller side of the business, Square’s growth is slowing relative to its competitors.
The market share gains that Afterpay — Block’s Buy Now Pay Later (BNPL) offer — has made in the credit markets also “decline” relative to others such as Affirm (AFRM).
As for the company’s bitcoin strategy, Dolev reiterated his stance that it has become a distraction or “Achilles heel” for the fintech company’s investors.
“Despite accounting for less than 5% of the company’s total gross profit in 1H22, Bitcoin continues to drive a significant portion of sentiment around the stock,” he said.
Like other public companies that have bitcoin on their balance sheet, Block must account for it as an intangible asset. The company wrote down the value of its bitcoin holdings to its lowest value for the period, a loss of $36 million on its balance sheet.
Block owns 8,027 bitcoins, which were valued at $146.8 million based on the lowest price the cryptocurrency traded this quarter.
Its bitcoin-centric subsidiary, called TBD, focuses on a number of different initiatives to decentralize internet platforms with the goal of not using a token or even a blockchain to realize the result.
Earlier this year, it announced a decentralized developer platform with Dorsey, refers to it as “Web5” over Twittera tongue-and-cheek poke at crypto’s “Web3”.
So far this year, SQ shares have fallen 65% from $144 to $55, while bitcoin has fared better, down 54% and currently trading at $18,933 per coin.
“Assessment of the stock’s behavior shows that it follows Bitcoin closely,” Dolev said. “This is unfortunate as it distracts both management and investors from focusing on SQ’s broader ecosystem.”
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David Hollerith is a senior reporter at Yahoo Finance covering cryptocurrency and stock markets. Follow him on Twitter at @DsHollers
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