Block short report allegations are exaggerated, says Bernstein

Bernstein analyst Harshita Rawat keeps an Outperform rating on Block with a $90 price target after analyzing the concerns raised by the Hindenburg short report last week. Conversations with former employees suggest the key allegations around illicit activity on Cash App, "Wild West" approach to compliance and "wildly overstated" user account are exaggerated with some anecdotes either taken out of context or are dated, the analyst tells investors in a research note. By nature, payment platforms have certain level of fraudulent and illicit activity, and Cash App skews towards underbanked so it is not unusual that it sees a bit more of this activity, contends the firm. It believes the most negative outcome of the short report could be greater regulatory scrutiny, costs, and lower user count if there are more steps during user signup. While the allegations in the report may present some overhang and regulatory uncertainty, Block’s risk/reward is attractive on valuation and its improving EBITDA story, Bernstein concludes.