Block (NASDAQ:SQ) made its name as one of the leaders in financial technology (fintech) by opening up the field to just about anyone with a smartphone or tablet. Now, everybody from street food vendors to outdoor art installations can discreetly take a credit card as payment for goods and services. But that initial outpouring of support didn’t last forever. UBS cut its rating on Block, and investors pulled back, sending Block down fractionally in Wednesday afternoon’s trading.
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The problem for Block, as far as Rayna Kumar with UBS was concerned, was not so much anything that Block itself had much control over. Rather, it’s a matter of the consumer. Since Block is basically a payment processor, it depends on people buying things. If consumers pull in their wallets, then there’s not a whole lot for Block to do, and that prompted the drop from Buy to “Neutral.” Given the current macroeconomic conditions on the ground, there’s little doubt that Kumar has a point.
The broader numbers do support Kumar’s thesis nicely. Cash App’s monthly user growth has been on the decline, and the monetization rates from Cash App are also falling. Though Block has been working to diversify, the diversification efforts are also looking a bit shaky. Streaming music service Tidal has to compete against a range of other streamers who have been in play longer, and the Spiral and TBD services work in Bitcoin-related software. That also depends somewhat on disposable income.
Still, in the end, analysts are very much on board. With 20 Buy ratings and six Holds, Block stock is considered a Strong Buy by analyst consensus. Further, Block stock also offers investors a hefty 48.21% upside potential thanks to the average price target of $86.26.
