Shares of Block Inc, the payments firm co-founded by Twitter co-founder Jack Dorsey, fell by 4% in premarket trading on Friday following a report by short seller Hindenburg Research. The report alleges that Block overstated its user numbers and understated its customer acquisition costs in its Cash App business.
According to the report, which Hindenburg calls a “forensic investigation,” Block’s Cash App business has been experiencing declining growth rates and increasing customer acquisition costs. Hindenburg alleges that Block has used questionable tactics, such as paying customers to download and use the Cash App, to inflate its user numbers.
Hindenburg also claims that Block has failed to disclose the full extent of its Bitcoin trading activities, which it says have been a significant driver of the company’s revenue growth.
Block has denied the allegations made in Hindenburg’s report, calling them “false and misleading.” In a statement, the company said that it “vehemently denies” any wrongdoing and plans to defend itself against the allegations.
The report by Hindenburg comes just a few months after the company targeted electric vehicle maker Lordstown Motors. In that report, Hindenburg accused Lordstown of misleading investors about the demand for its electric truck and the company’s production capabilities.
The accusations made by Hindenburg have raised concerns among investors about the future of Block and its Cash App business. If the allegations are found to be true, Block could face regulatory action and significant financial penalties.
Block has been one of the fastest-growing payments companies in recent years, driven by the success of its Cash App business. The Cash App allows users to send and receive money, buy and sell Bitcoin, and make purchases with a debit card linked to their account.
In its most recent earnings report, Block reported that its revenue had more than doubled year-over-year, driven by the growth of its Cash App business. The company also reported that it had added more than 3 million net new users to the Cash App during the quarter.
Despite the recent allegations made by Hindenburg, some analysts remain optimistic about Block’s future. Wedbush analyst Dan Ives said in a note to clients that he believes the allegations are “noise” and that Block remains a “compelling investment opportunity.”
In conclusion, the report by Hindenburg Research alleging that Block overstated its user numbers and understated its customer acquisition costs in its Cash App business has raised concerns among investors about the future of the payments firm. Block has denied the allegations and plans to defend itself against them. While some analysts remain optimistic about Block’s future, the accusations made by Hindenburg could have serious consequences for the company if they are found to be true.