SQ2 - Block CDI 1:1

[basilio]

The Hindenburg analysis of Square is powerful and colourful. As usual they seem to have been very thorough in chasing down information from ex staff as well as their own broader research.

The core of the report is in the Summary.

Block: How Inflated User Metrics and “Frictionless” Fraud Facilitation Enabled Insiders To Cash Out Over $1 Billion​

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Published on March 23, 2023

• Block Inc., formerly known as Square Inc., is a $44 billion market cap company that claims to have developed a “frictionless” and “magical” financial technology with a mission to empower the “unbanked” and the “underbanked”.
• Our 2-year investigation has concluded that Block has systematically taken advantage of the demographics it claims to be helping. The “magic” behind Block’s business has not been disruptive innovation, but rather the company’s willingness to facilitate fraud against consumers and the government, avoid regulation, dress up predatory loans and fees as revolutionary technology, and mislead investors with inflated metrics.
• Our research involved dozens of interviews with former employees, partners, and industry experts, extensive review of regulatory and litigation records, and FOIA and public records requests.
• Most analysts are excited about the post-pandemic surge of Block’s Cash App platform, with expectations that its 51 million monthly transacting active users and low customer acquisition costs will drive high margin growth and serve as a future platform to offer new products.
• Our research indicates, however, that Block has wildly overstated its genuine user counts and has understated its customer acquisition costs. Former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual.
• Core to the issue is that Block has embraced one traditionally very “underbanked” segment of the population: criminals. The company’s “Wild West” approach to compliance made it easy for bad actors to mass-create accounts for identity fraud and other scams, then extract stolen funds quickly.
• Even when users were caught engaging in fraud or other prohibited activity, Block blacklisted the account without banning the user. A former customer service rep shared screenshots showing how blacklisted accounts were regularly associated with dozens or hundreds of other active accounts suspected of fraud. This phenomenon of allowing blacklisted users was so common that rappers bragged about it in hip hop songs.

Block: How Inflated User Metrics and “Frictionless” Fraud Facilitation Enabled Insiders To Cash Out Over $1 Billion

Block Inc., formerly known as Square Inc., is a $44 billion market cap company that claims to have developed a “frictionless” and “magical” financial technology with a mission to empower the “unban…

hindenburgresearch.com

 

[Dona Ferentes]

Square continues to divide opinions, and the Hindenburg report rippled through; locally it has pushed below $90 on the ASX. As well, Young Joe Aston had a go recently at the 'freewheeling' management style of Dorsey, of using company cash for favoured projects,

Shawn Carter (Jay-Z) is a director; there was a related party transaction of $US700,000 Block provided to the Bitcoin Academy,

“a project personally funded by Messrs Carter and Dorsey” for the residents of a public housing estate, the Marcy Houses, in Brooklyn, New York “where Mr Carter grew up”.

......
In first quarter results just out, Block said it generated gross profit of $US1.71 billion, up 32 per cent year over year.

Cash App generated gross profit of $US931 million, up 49 per cent year over year, and Square generated gross profit of $US770 million, up 16 per cent year over year, it also said.

The Cash App Card has continued to expand its reach and engagement: In March, there were 20 million monthly Cash App Card active users, up 34 per cent year over year, with average spend per active increasing as well.

 

[Dona Ferentes]

a global systems outage for Square last Friday...
.
with a low of $83.35, ... and that's in AUD

Square’s day-long payment system outage has attracted the attention of the Reserve Bank, which is considering whether the Block-owned company should be forced to start disclosing when its technology goes down, so small businesses can compare its reliability against banks’ terminal offerings.

Square suffered widespread processing problems on Friday that prevented thousands of Australian small businesses from accepting card payments. This was caused by an internal software update that stopped its systems communicating, the US-based company told customers in an email on Monday.

... but it sounds like communication was on the skinny side, let alone their tech response.
"Square apologised for the length of time it took to restore systems, its irregular communications, and a “delayed support response” to customers calling for help."

 

[frugal.rock]

Down, down. Status quo

 

[Dona Ferentes]

"Hello, Sydney, it's New York on the line. Sell on opening, please."
.

 

[Dona Ferentes]

mid 60's on the ASX
.

I can feel some right-sizing coming on:​

Job losses at HQ come against a backdrop of a falling share price for Block, which is dual-listed on the ASX and NYSE. Block’s stock has almost halved in the past two months.

That move has seen Block’s total market capitalisation fall to $US25.56 billion ($40.5 billion). It’s now less than what Block paid for Afterpay in 2021.

Block acquired the BNPL company in a $US29 billion all scrip deal in 2021

 

[Dona Ferentes]

"Hello, Sydney, it's New York on the line. on opening, please....

....get busy. Buyers around, and Square up 20 per cent on results.

Afterpay parent Block climbed after the company boosted projections for adjusted profit. The company forecasts adjusted earnings before interest, taxes, depreciation and amortisation for 2023 to be in the $US1.66 billion ($2.58 billion) to $US1.68 billion range.

 

[Dona Ferentes]

....get busy. Buyers around, and Square up 20 per cent on results.

Afterpay parent Block climbed after the company boosted projections for adjusted profit. The company forecasts adjusted earnings before interest, taxes, depreciation and amortisation for 2023 to be in the $US1.66 billion ($2.58 billion) to $US1.68 billion range.

that was ASX reaction...& making it >25% here. ...but in the U.S.,

Block jumped 10.3 per cent after raising its annual adjusted profit forecast.

must be some arbitrage around.

 

[Dona Ferentes]

I can feel some right-sizing coming on:

Job losses at HQ come against a backdrop of a falling share price for Block...

and a revisit.

Afterpay’s parent Block started cutting more than 1000 jobs globally on Wednesday, kicking off a round of job cuts targeting workers from Australia to San Francisco.

The exact number of locally affected staff is unknown because labour laws require consultation before jobs can be made redundant. But speculation is widespread that roles focussed on expanding Afterpay globally are in for heavy cuts.

“Knowing a bunch of the people and who [were in] teams who were let go and what they did, I’m not honestly sure how Afterpay in its current form survives outside of AU,” one employee wrote on Blind, an anonymous social network that requires verified company emails for participation.

.
mm.. up from lows but not impressive since listing. Afterpay holders who sold then did well

 

[Dona Ferentes]

It is reported Nick Molnar is working with Block as the company looks to enhance and integrate Afterpay into CashApp. In the quarterly report, Block mentioned accelerating growth at Afterpay, with $US8.6 billion ($13.1 billion) of sales going through the platform in the fourth quarter, up 25 per cent year-on-year, bringing the 2023 total to $US27 billion – almost double the volumes when the business was sold.

JachDorsey told the market his strategy was to “bank the base” in the US by focusing on getting Cash App onto the smartphones of families and by creating a “social bank” building off its peer-to-peer network effects.

“Our strategy is to make sure we are the best and first choice, for anyone making under $150,000, to see Cash App as their primary bank,” Mr Dorsey said. “We are going to move very fast because we have a very focused road map – and against banking in particular.”

Afterpay “makes it easy for Cash App to go to market and acquire customers who will choose us as their primary provider of banking services.”

SQ2 put on 15 per cent during the week