The Adani short seller is back with its latest research report this time against Jack Dorsey’s company
The report alleged that Block’s core technology and mission was flawed and that the company had engaged in deceptive marketing practices. The accusations caused the stock to plummet 14.8% over the day. Hindenburg disclosed in the report that it is short the stock currently.
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This latest leg down in the stock price is only a blip on the five-year chart that shows shares are trading almost 80% below their pandemic highs.
This is the second major report that Hindenburg has published in 2023 after attacking Indian billionaire Gautam Adani in late January, summarized by Fintel journalists here.
Hindenburg claims that it conducted a two-year investigation which found that Block has systematically taken advantage of the demographics it claims to be helping.
The report claimed that the payments platform had exaggerated its partnerships and customer base in order to create the appearance of a thriving business. Hindenburg cited discussions with former employees that estimated between 40% to 75% of accounts they reviewed were fake, involved fraud or were additional accounts tied to a single individual.
The report added that the Square boasted about significantly growing user accounts through the pandemic, which drove shares more than 600% higher. On the back of the explosive share price, Hindenburg highlighted co-founders Jack Dorsey and James McKelvey collectively sold more than $1 billion of stock.
Block responded by vowing to fight back with legal action against Hindenburg for its “falsely inaccurate and misleading report.” Nevertheless, the allegations made in the report are likely to continue to weigh on the company's share price in the coming days and weeks.
Analysts are still bullish on Block as highlighted by Fintel’s consensus share price of $99.77, which suggests the Street expects the stock could rise 60% this year.
However, on the flip side, Hindenburg could be on to something here. Even though analysts, in general, seem bullish at these prices, several institutions are bearish with bets SQ’s stock price will fall further this year.
So, who else is short Block Inc right now?
Twin Tree Management LP has the largest net short position in Block stock, worth $68.92 million. The position is made up of $15.03 million in direct shares, $39.84 million in call options and $123.80 million in put options.
Parallax Volatility Advisers LP has the second-highest net short exposure of $18.66 million in SQ stock. This is comprised of $4.71 million of direct shares, $110.62 million in call options and $133.99 million in put options.
Calamos Market Neutral Income Fund Class A has a $13.76 million short exposure made up of a direct short position from borrowed stock.
Capital Fund Management has a short position worth $9.11 million made up of $23.18 million in call options and $32.29 million of put options.
Kynikos Associates LP is short $7.45 million made up solely of put options.
Federated Hermes MDT Market Neutral Fund has a $6.21 million direct short exposure to the stock.
MUFG Securities EMEA has a $5.03 million short position which comprises of a $5.80 million long position and $10.83 million in put option exposure.
Article by Ben Ward, Fintel