After shining brightly during the pandemic-era, Block’s (SQ) reversal of fortune has been acute. It’s been a search from the bottom since the reopening and the loss of the Covid-driven tailwind. The bottom-line – this is a stock which has trended south by 66% this year.
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Is the fintech disruptor ripe for a turnaround, then? Not according to Mizuho analyst Dan Dolev. In fact, once a full-on SQ bull, the analyst is no longer banging the drum for the digital payments specialist.
“After years of rightfully being deemed the most innovative name in payments, we believe user fatigue, plateauing inflows, loss of the best-of-breed POS status, and BNPL misexecution are blocking SQ’s growth,” Dolev recently said. “SQ still has enormous potential, but it is not being realized.”
Once Block’s golden goose, Dolev now has various concerns regarding the Cash App’s growth potential. This year, the analyst expects its penetration of the 18-45 year-old cohort to grow by 500bps, far lower than the 800-900bps p.a. seen over the past three years. Amongst lower-income households, in particular, Dolev thinks Cash’s penetration is close to saturation levels.” “In 2Q,” explains the analyst, “its 47mn monthly users equated to an estimated 75% of individuals in US households with earnings less than $70K per year.” And despite customer acquisition costs (CAC) doubling, recent quarters have exhibited a slowdown in MAU (monthly active user) additions.
But it’s not just the Cash App that has issues.
Afterpay’s penetration of the credit markets “appears to be abating” while competitors are gaining share. And don’t mention CEO Jack Dorsey’s beloved bitcoin, which represented less than 5% of gross profit in 1H22 but seems to “disproportionately preoccupy management’s attention.”
With the issues piling up, it’s time for a downgrade. Dolev lowers SQ’s rating from Buy to Neutral whilst reducing the price target all the way from $125 to $57, suggesting the shares will stay range-bound over the coming months. (To watch Dolev’s track record, click here)
In contrast to Dolev, most on the Street are still in Block’s corner. The reviews breakdown into 23 Buys, 7 Holds and 2 Sells, all resulting in a Moderate Buy consensus rating. The average price target remains an upbeat one; at $106.83, the figure could generate returns of 97% over the next year. (See Block stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
