Block Stock Bounces Back After Refuting Hindenburg Report Findings

Block’s stock recovered late last week after it issued a detailed response to a short seller’s negative report.

On March 23, Hindenburg Research published a report accusing the payments company of inflating the user base of its Cash App money transfer platform and permitting criminal activity to occur there, leading Block’s stock to fall 20%.

At the time, Block responded by saying it was exploring legal action against Hindenburg, and called the findings “factually inaccurate and misleading.”

A week later, Block issued a longer statement saying it had verified 44 million of its 51 million monthly active customers on Cash App as of the end of 2022. The company said it estimates that these 44 million accounts made up about 97% of Cash App’s inflows last December.

“While it’s challenging to arrive at definitive estimates of the amount of fraud and illicit activity, we measure the number of accounts that we “denylist” (a control that prevents, among other things, sending and receiving funds, using a Cash App Card, buying stocks or bitcoin, or taking a loan),” Block said.

“In 2022, approximately 2.4% of Cash App transaction active accounts were denylisted by our Compliance and Risk teams during that year.”

Wall Street was reportedly heartened by the news. Block’s stock, priced at $60.68 following the Hindenburg report, reached $70 on Friday (March 31).

“While we are not inside the company evaluating these various processes and data points ourselves, at face value we find them quite salient in outlining the levers and controls in the business,” Macquarie Research’s Paul Golding wrote, per a report by Barron’s.

Founded by Twitter co-creator Jack Dorsey, Block’s businesses include Cash App, the retail point-of-sale offering Square, and buy now, pay later (BNPL) company Afterpay.

In February, Block said it was on track to reach profitability while acknowledging the road could be a long one after reporting a $114 million loss for the last quarter of 2022.

As PYMNTS noted, the company’s Chief Financial Officer and Chief Operating Officer Amrita Ahuja put a positive spin on the earnings results in an interview with CNBC.

“What’s really exciting to me is to see increasing daily utility across each of these ecosystems. Square sellers who took on four or more of our monetized products made up 44% of our gross profit in 2022. It’s up 15 points over three years,” she told the network.