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Block's response to short report results in mixed reaction from Wall Street analysts

Published 03/30/2023, 02:00 PM
Updated 03/30/2023, 02:25 PM
© Reuters.  Block's (SQ) response to short report results in mixed reaction from Wall Street analysts

By Sam Boughedda

Block Inc (NYSE:SQ) shares rose Thursday after the company spoke out again in response to Hindenburg Research's short report last week.

Hindenburg disclosed a short position in the company and alleged Block inflated user metrics on Cash App and didn't rein in criminal activity by users.

Answering questions on its user metrics, Block said Cash App is built to support customers and that it has "more than 51 million monthly transacting actives," with approximately 44M verified.

On the topic of compliance, the company said it believes its approach is consistent with other financial services platforms.

Reacting to the comments, Mizuho analysts told investors in a note Thursday that the second rebuttal from Block is a positive step, but it "fails to address a key concern, namely the amount of GP generated via illicit activity."

RBC Capital analysts said the disclosures will "provide some clarity to investor concerns in regard to the accusations made in last week's short report."

Citi analysts said the firm believes the disclosures set the record straight that the degree of fraudulent activity on the platform is not as widespread as the short-seller report suggested. They also noted that Block's identity verification system has significantly improved in recent years.

Wolfe Research told investors in a note that "the most salient points from the report pertained to the number of duplicate accounts on the platform as well as questions around Cash App's compliance infrastructure."

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