Block Inc. (NYSE: SQ) stock was in freefall after short-seller Hindenburg Research targeted the payment company. SQ stock fell by 20% in a single trading session and struggled at around $58.
The research firm disclosed its short positions on the company on Thursday, Mar 23, accusing it of exaggerating its user base and downplaying customer acquisition costs. Block was also accused of allowing criminal activities to occur with loose operational control. It used the term “Wild West” for the company’s approach towards its internal system compliance.
Hindenburg Research published its report on its website on Thursday, March 23. After its 2-year-long investigation, the report noted, the firm found that Block Inc. had taken “advantage of the demographics” disguised as help. Block, Cash App, the mobile payment service, was said to gain from its “unbanked” customers.
According to CNBC, the report revealed that among those unbanked customers, which the company was assumed to serve, were people involved in criminal activities. Cash App’s compliance was also said to be not up to the mark.
Hindenberg claims to source company-related information from its former employees. They brought insights about the ignorance towards concerns within the company and related to users. This ramped up alleged “criminal activity and fraud” over its payment platform.
In addition, the report stated, citing Block Inc.’s former employees, that 40% to 75% of the reviewed accounts on the platform were fake and were likely to be involved in fraud. The company confused others about the number of users on the platform, which led to reports of duplicate accounts carrying ambiguous metrics of “transacting active.”
The Hindenburg report put the allegations up around revenue, stating that around $892 million, accounting upto 35% of Cash App’s revenue, were generated through interchange fees, stating the amount is liable to be limited by law.
The report said that Co-founders of Block Inc., Jack Dorsey, and James McKelvey, sold off their stocks collectively (worth more than 1 billion USD). Block shares sold in the wake of a jump in the stock price during the Covid-19 pandemic. Finance Chief Amrita Ahuja and Cash App Lead Manager– Brian Grassadonia also off-loaded their shares.
Block Stock Price: Gap Down Market, Confused Market Sentiments – Technical Indications
The gap-down market led by some recent reports and confused market sentiments over Block Inc stock price is testing investor confidence in the market.
SQ stock price opened Thursday’s trading session with a gap down the market, taking the price fluctuation to $56.57. However, it closed Wednesday’s trading session at $72.64, and the sudden price drop can be observed due to the price gap on the opening of Thursday’s trading session.
The stock price has dropped below the 20-, 50-, 100- and 200-days, Daily Moving Average.
Technical indicators suggest strong downward velocity of SQ stock price. The relative strength index showcases the downtrend of SQ shares over the daily time frame chart.
MACD exhibits the SQ share price drop as the MACD line is below the signal line, registering a negative crossover.
Support Levels: $56.75 and $55.00
Resistance Levels: $65.90 and $67.40
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