According to Mizuho, Japan’s third-largest financial services company, Bitcoin transactions account for a small portion of total revenue, while they appear to consume excessive management time and attention.

Mizuho analyst Dan Dolev downgraded Square’s parent company, claiming that Block SQ officials focused too much on the wrong things. Andrew Bauch, an analyst at SMBC Nikko Securities America, downgraded the company the day before, and Dolev’s demotion follows in his footsteps.

Block SQ Stock Is Downgraded

According to Bauch, investors can disregard “second derivative” aspects of the company’s bitcoin trading function, such as the effect of the cryptocurrency feature on inflows. Dan Dolev downgraded Block from buy to neutral and lowered his price target from $125 to $57, implying that the company is fully priced in, with shares trading for more than $56.

Dolev stated that “user fatigue, plateauing inflows, and the loss of the best-of-breed” point-of-sale company are the reasons he is less optimistic about Block’s development. He also chastised Block for employing “misexecution” in the buy now, pay later initiatives.

Dolev noted that Block still has enormous potential that is not being realized, which is why he no longer believes the firm warrants a high price target and valuation.

Why Are Shares Being Downgraded?

Mizuho Investment Bank downgraded Block (SQ), the payments firm led by Twitter co-founder and cryptocurrency supporter Jack Dorsey, from buy to neutral, citing “customer fatigue” and management’s focus on bitcoin (BTC).

According to analyst Dan Dolev’s note to clients, Cash App’s penetration among Americans aged 18 to 45 is expected to increase by 500 basis points in 2022, less than the 800-900 basis points observed annually over the previous three years.

Furthermore, Dolev noted that, despite accounting for only about 5% of gross earnings in the first half of 2022, bitcoin occupied a larger portion of management’s attention. He stated that Block’s focus on bitcoin harmed the company’s stock performance and diverted attention away from the company’s other important platforms.

He claimed that Block benefited from the increase in bitcoin prices. The ultimate sale of bitcoin by a Cash App user may have resulted in inflows into the app, which they could monetize in various ways. He believes that the inverse dynamic is in play now that the price of bitcoin is nearly 70% below its highs.

Block Stock Price Under Pressure

Shares of Block Inc, formerly known as Square, were trading above $200 per share in June 2021. However, its stock has suffered greatly this year, falling more than 65%. Block’s most recent quarterly financial report revealed a net loss of approximately $208 million, compared to a profit of $204 million in the second quarter of 2021.

Although gross payment volume increased by about $10 billion over the previous year, it fell short of experts’ expectations. Block’s stock fell 5.92% in morning trade and 64% this year. They closed at $59.45 on September 22 and are now trading at $55.93.

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