Block shares are unlikely to recover anytime soon: Dan Dolev

By:
on Sep 22, 2022
  • Mizuho downgrades Block Inc to "neutral" and trims PT to $57.
  • Analyst Dan Dolev explained the dovish view in a research note.
  • Block shares are down about 65% versus the start of the year.

Block Inc (NYSE: SQ) has lost over 65% this year and a significant recovery, at least in the near term, is not on the cards, says Dan Dolev – a Senior Analyst at Mizuho.

Block shares are fairly priced

On Thursday, he downgraded the fintech to “neutral” and trimmed his price target to $57 a share that does not represent a meaningful upside from here. Dolev’s research note reads:

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After years of being deemed the most innovative names in payments, we believe user fatigue, plateauing inflows, loss of the best-of-breed POS (point-of-sale) status, and BNPL (buy-now-pay-later) mis-execution are blocking Block’s growth.

Earlier this year, Block completed its AU$39 billion acquisition of Afterpay to penetrate the BNPL space. But it’s taking longer to win market share compared to rival Affirm Holdings Inc, the analyst added.

Recent slowdown in net adds was among other reasons cited for the dovish view on Block shares.

More reasons to be dovish on ‘SQ’

Last month, Block said its revenue in the fiscal second quarter was down 6.0% on a year-over-year basis. Dolev, on Thursday, slashed his outlook for gross profit from “Cash App” in 2024 by about 15% and said:

Block still has enormous potential, but it’s not being realised. BNPL estimates continue to come down and projects like Bitcoin, which account for less than 5.0% of gross profit seem to disproportionately preoccupy management’s attention.

Rising customer-acquisition costs and decelerating monetisation rate also suggest the stock no longer deserves a premium in the payments space, the analyst concluded.

Versus their record high in 2021, Block shares are now down roughly 80%.

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