“Block has systematically taken advantage of the demographics it claims to be helping,” Hindenburg Research said.
Updated at 9:35am EST
block inc. (square) – Get a free reportStocks fell Thursday after Hindenburg Research, a prominent short seller, accused the payments group led by former Twitter CEO Jack Dorsey of exaggerating its user base and helping facilitate illegal transactions.
In a research note published Thursday, Hindenburg said a two-year investigation into Block, which was formerly known as Square and focuses on “frictionless” technology aimed at empowering an “unbanked” customer base, was has “systematically taken advantage of the demographics it claims to be helping.”
Hindenburg said his investigation was based on employee interviews, “freedom of information” requests for public records and conversations with industry experts. He also indicated that he had taken a short position in Block shares.
Block was not immediately available to comment on Hindenburg’s allegations when contacted by TheStreet outside of normal business hours.
“The ‘magic’ behind Block’s business has not been disruptive innovation, but the company’s willingness to facilitate fraud against consumers and the government, avoid regulation, disguise predatory lending and fees as breakthrough technology, and fool investors with inflated metrics”, Hindenburg. he said, including a monthly active user base of 51 million.
“Our research indicates, however, that Block has grossly inflated its genuine user counts and underestimated its customer acquisition costs. Former employees estimated that between 40% and 75% of the accounts they reviewed were fake, involving fraud or were additional accounts linked to a single individual
The block shares traded 21.2% lower in early trading on Thursday to change hands at $56.75 apiece, a move that would throw the shares into negative territory for the year.
Cathie Wood’s ARK Innovation ETF, where Block is her fifth-largest holding, registered 0.9% lower at $38.05 apiece.
Block warned investors in February that it would “significantly” reduce hiring over the next year, but stood by its financial targets for 2023 amid what it called “uncertainty” in the global payments market.
The group reported overall revenue of $4.65 billion for the three months ending in December, just above Street’s forecasts, but posted an adjusted bottom line of 22 cents per share, about 8 cents below consensus estimates. .
Earlier this year, Hindenburg Research published a report on the Adani Group, an Indian company controlled by billionaire Gautam Adani, which described the conglomerate as “nothing but a lie.”
Hindenburg accused Adani of engaging in a “blatant scheme of stock manipulation and accounting fraud spanning decades,” and accused him of misusing tax havens to bury stock holdings in some of his publicly traded companies, while noting that “substantial debt” could threaten the broader pool.
In a 413-page response, published on January 29, Adani said that “all transactions made by us with entities that qualify as ‘related parties’ under Indian laws and accounting standards have been duly disclosed by us,” adding Hindenburg’s claims regarding offshore transactions. entities were “misleading”.