Block stocks fall after Hindenburg Research targets fintech

Block, formerly known as Square, is a digital payment company that offers checkout services at businesses such as cafes and farmers’ market stalls. But it also offers mobile transactions through the Cash App.

Shares in Block were 12.1 percent lower at USD 63.84 at 11:51 a.m. in New York, paring some of its earlier decline of nearly 20 percent. The stock has lost more than half of its value since March 2022, with most of the fall in mid-June 2022.

By midday in New York, Block had not yet responded to Hindenburg’s claims.

“Key Calculations”

Hindenburg has targeted about 30 companies since 2020 and their shares lost an average of about 15 percent the next day, according to Bloomberg News calculations. Six months later, the shares were down 26 per cent on average.

Hindenburg said their research “indicates” that Block has grossly overestimated the real number of users and has underestimated the cost of customer acquisition.

“In sum, we believe Block misled investors on key figures, and embraced predatory offerings and worst compliance practices to fuel growth and profit from facilitating consumer and government fraud.

“We also believe that Jack Dorsey has built an empire—and amassed a personal fortune of $5 billion—that says he cares deeply about the demographics he benefits from.

“With Dorsey and senior executives already selling over $1 billion in equity on Block’s meteoric pandemic rise, they’ve ensured they’ll be fine, regardless of the outcome for everyone else.”

Hindenburg rose to prominence after his scathing report on billionaire Gautam Adani’s business empire in January, which saw the shares and bonds of all 10 Adani-related companies fall.

The conglomerate’s flagship Adani Enterprises has fallen 48 percent since the report, although the group denied Hindenburg’s allegations of accounting fraud and stock manipulation. Hindenburg’s Twitter followers have doubled to surpass 500,000.

Hindenburg’s report on electric car maker Nikola Corp in September 2020 sent the stock plummeting and led to criminal charges against the company’s founder, Trevor Milton. He was convicted in October of defrauding investors.

Anderson’s firm describes itself as a forensics outfit that operates with its own capital. But it follows standard procedure for a so-called activist short: After researching a potential target, Hindenburg bets the stock will fall, then trumpets the research publicly, using social media to get the word out.

With The Washington Post, Bloomberg