Block (NYSE:SQ) stock has weakened 1.2% in Thursday premarket trading after Mizuho analyst Dan Dolev downgraded the fintech to Neutral from Buy as he sees several factors, including "Buy Now Pay Later" mis-execution, hindering the company's growth.
"SQ still has enormous potential, but it is not being realized. Instead, BNPL estimates continue to come down and projects like bitcoin (BTC-USD) — which accounts for less than 5% of gross profit — seem to disproportionately preoccupy management's attention," the analyst wrote in a note to clients.
Dolev lowers his estimate for Cash App 2024 gross profit by ~15% from his prior expectation. Figuring into his lower Cash App expectations are: slowing user penetration growth; over-saturation of low income households; a slowdown in monthly active user additions; and without its recent increase in instant deposit pricing, its monetization rate would have been "flattish."
For Afterpay, the acquisition that brought Block (SQ) into the BNPL space, the company is seeing slower market penetration as competitors, such as Affirm (AFRM), gain significant market share. In addition, bitcoin (BTC-USD) "continues to drive a significant part of the sentiment around the stock" even though it accounts for less than 5% of total company gross profit.
Dolev's Neutral stance aligns with the Quant rating of Hold and contrasts with the average Wall Street rating of Buy, and the average SA Author's rating of Buy.
Meanwhile, SA contributor Michael Wiggins De Oliveira, in revisiting Block (SQ), sees selling pressure continuing for non-fundamental reasons.