Block stock plunges following release of Hindenburg Research’s scathing report

Yahoo Finance Live anchors Julie Hyman and Brad Smith discuss the decline in stock for Block.

Video Transcript

JULIE HYMAN: Shares of Block are cratering right now, down 16% after the release of Hindenburg Research's latest scathing report. That's two months after the short seller's explosive allegations against Adani Group. Hindenburg Research's what it says is a two-year investigation into Block concluded that the company has allegedly systematically taken advantage of the demographics it claims to be helping.

And just for a little way of background here, Hindenburg Research is a short seller. It comes out with short research reports, right? Had tweeted yesterday that it was coming out with its next report. That got a lot of attention. So this is definitely strategic here, but the allegations in this report are pretty staggering here, essentially saying that Block allows fraudulent accounts or turns a blind eye to them, that it allows criminals to operate pretty much unchecked on the platform, and therefore has vastly inflated the number of users it actually has.

By the way, we've reached out to Block for comment on this. We have not yet gotten that comment back as of now.

BRAD SMITH: Yeah, a lot of the bullets within here are absolutely eye opening. And one of them I believe we have the tweet because they had started to tweet out some of the receipts that were necessary when you're publishing a report like this, and part of it was within one of the points that they made within this report. They turned some accounts into Donald Trump or into Elon Musk. Were easily able to send and receive money. They ordered a cash card under their obviously fake Donald Trump account, checking to see if Cash App's compliance would take issue. Card promptly arrived in the mail. You're taking a look at that card on the screen there.

They also mentioned that within the kind of overstating of its genuine user accounts has understated its customer acquisition costs, and former employees estimated that 40% to 75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual. So it comes back to an issue of how companies are identifying a unique user versus one user that has multiple accounts, perhaps, at the end of the day.

JULIE HYMAN: Yeah, and also this is alleging that some of the misuse of the platform, perhaps, happened during COVID relief payment time, right, that the CEO, Jack Dorsey, according to this report, said users could get their payments, remittances through Cash App immediately with no bank account needed. And then states were trying to claw back allegedly fraudulent payments following that.

Again, all of this is according to this report. You know, you have to couch these carefully when you get these short reports because Hindenburg has done research here. Comes out with this report. Obviously has something it wants to achieve in making these allegations.

Hindenburg does have a record of getting some of this stuff right. Adani is definitely a big example of that. But again, just to-- you know, right now this is one source and one report and allegations.

BRAD SMITH: Yeah, I mean, some of the other reports that we think about as well even in the past-- Nikola and Trevor Milton. And for Hindenburg, that was a major kind of kicking-off point. At least the research report that they put out was a kicking-off point to the investigation into Nikola and then the subsequent downfall from leadership at Nikola of Trevor Milton and some of the fraudulent allegations and convictions that came forward later on as well. So there is a history within Hindenburg Research in being correct about some of the reports that they do publish.

So we'll see what Block has to say about this too, hopefully as they return our calls here.

JULIE HYMAN: Yeah, I'm just looking at how Square-- excuse me, Block's-- Square is still the ticker, isn't it, SQ-- how the stock has done. This is a stock that peaked, like many of its tech and fintech peers, back in 2021. Peaked a little bit earlier. Many of them peaked in, like, October, November. It peaked in August. August 5 was the high.

It's down 66% since then. Has recovered about 16% this year. So it has under-- you know, it has not done as well as many of the other momentum peers, if you will, for the year to date, which is interesting.

Actually, I'm going to back out today's action to see if that changes at all because it's down so much. Well, no, of course it doesn't count today because we're not open.

BRAD SMITH: Hasn't started yet.

JULIE HYMAN: Yeah. So yes--


JULIE HYMAN: --it's up 16%--

BRAD SMITH: Seconds from now, in fact.

JULIE HYMAN: --on the year. Exactly.



BRAD SMITH: And, I mean, it's been a business that's been-- it's going through multiple acquisitions, whether that be title, whether that be bringing in delivery elements to its own business as well. And so still one that is largely valuable for so many merchants out there, small businesses that had used the point-of-sale platform, and then even all the way to the Cash App platform that's been valuable as well for peer-to-peer transactions. But just a question of how many actual peers are on there.

JULIE HYMAN: Yeah, that's really the question.