Is Block Inc. suffering from a creative block?
It seems that executives at Block SQ were focusing on the wrong things, as analysts Dan Dolev downgraded shares of the Square parent company and suggested that executives at the Mizuho note Thursday.
After years of being deemed the most innovative name in payments, we believe user fatigue, plateauing inflows, loss of the best-of- breed POS point-of-sale status and BNPL buy-now-later misexecution are blocking SQ's growth, Dolev wrote in his research note, while lowering his rating on Block's stock to neutral from buy.
He doesn't think it's doing enough to take advantage of its opportunities, because Block still has enormous potential in his view. The company acquired Afterpay earlier this year, but Dolev noted that estimates for buy-now pay-later continue to come down. While BTCUSD contributes to less than 5% of Block's gross profit, projects related to the cryptocurrency seem to preoccupy management s attention, Dolev said.
He said that the stock closely follows the stock's behavior, because of the stock's behavior. This is unfortunate because it distracts both management and investors from focusing on SQ's broader ecosystem. These companies hopped on the train when times were booming. Dolev is worried about other factors, including a recent slowdown in net additions. Even as customer acquisition costs are rising, he said that net-add growth is slowing.
Dolev s rating was lowered a day after he was downgraded by SMBC Nikko Securities America analyst Andrew Bauch. Bauch said investors may overlook the second derivatives of the company's coin trading feature, such as the impact of the coin feature on inflows.
He suggested Block might have benefited when a Cash App user's eventual sale ofbitcoin might have resulted in inflows into the app that could have been monetized in other ways. He wrote that the inverse dynamic is underway now that the price ofBitcoin is 70% off its highs.
Block shares fell by 3.3% in Wednesday's session and down 4.6% in Thursday morning trading.