Capital Indexation: Budget 2024

 KEY POINTS IN HINDENBURG REPORT ON BLOCK INC FORMERLY KNOWN AS SQUARE

INTRODUCTION

Block, Inc. (formerly Square, Inc.) is an American multinational technology company founded by Jack Dorsey and Jim McKelvey in 2009 that launched its first platform in 2010. Since November 2015, it has traded as a public company on the New York Stock Exchange under the SQ ticker. 
Square is a payment platform targeted at small and medium-sized businesses, allowing them to accept credit card payments and use smartphones or tablet computers as payment registers for a point-of-sale system. 
The company offers Square, Cash App, Spiral and Tidal , among others. It helps sellers manage their businesses through its commerce solutions, business software, and financial services. Cash App assists in sending, spending, or investing their money in stocks or Bitcoin. Spiral (formerly Square Crypto) builds funds-free, open-source Bitcoin projects. TIDAL is used to help entrepreneurs to connect more deeply with fans. investing their money in stocks or Bitcoin. Spiral (formerly Square Crypto) builds funds-free, open-source Bitcoin projects. TIDAL is used to help entrepreneurs to connect more deeply with fans.

The points mentioned in the Hindenburg report on Block were :

1. Block grossly overestimated the number of its real users and understated the cost of customer acquisition. Former employees estimated that 40–75% of the accounts they reviewed were fake or involved in fraud, or were additional accounts linked to a single individual.
2. Even if users were caught cheating or engaging in other prohibited activities, Block blacklisted the account without suspending the user.
3. Block obscures the number of users on the Cash App platform by publishing deceptive statistics about "transacting active" filled with fictitious and duplicate accounts.
4. A major non-profit group has reportedly revealed that Cash App was " by far" the most top app used in reported sex trafficking in the United States. According to numerous Department of Justice reports, Cash App has been shown to be used to facilitate sex trafficking, including trafficking of Minors.
5. As fraud and illegal behaviour spread on the platform, Cash App suppressed internal concerns and disregarded users' pleas for support. This appears to be an attempt to strategically disregard anti-money laundering (AML) regulations in order to grow Cash App's user base.
6. Co-founders Jack Dorsey and James McKelvey sold more than $1 billion worth of stock during the pandemic, when Block's value rose dramatically due to fraud facilitation. Other executives also sold millions of dollars' worth of stock, including Cash App senior manager Brian Grassadonia and chief financial officer Amrita Ahuja.
7. Block has quietly boosted its profits by growing its Epidemic Cash app user base, bypassing a key banking regulation designed to protect retailers. Merchants must pay "interchange fees" to accept a variety of payment cards.
8. Block's records make only one ambiguous reference to revenue from "interchange fees." Although the company has never disclosed the full economics of this sector, a 2022 Credit Suisse research report estimates that this unidentified source accounted for nearly one-third of Cash App's revenue.

9. Afterpay's 'buy now, pay later' (BNPL) service was acquired by Block in a $29 billion deal that closed in January 2022. Block described Afterpay as a major financial innovation that allows consumers to buy items such as shoes or T-shirts and pay over time, paying significant fines if consecutive payments are made late.

10. Nevertheless, Block is valued at (i) an EV/EBITDA multiple of 60x, (ii) a projected 2023 "adjusted" earnings multiple of 41x, and (iii) a price-tangible book value ratio of 13.1x, all radically out of line with intech competitors.

11. Despite its current high multipliers, Block is still under attack from major competitors such as Zelle, Venmo/Paypal, and rapidly expanding payment services from industry giants such as Apple and Google. Apple currently has the largest share of the global digital wallet market, having increased Apple Pay activations from 20% in 2017 to over 70% in 2022.