Block stock rises upon response to Hindenburg Research’s report alleging fraud

Yahoo Finance Live discusses Block's rise in shares and their response to short-seller Hindenburg Research's fraud claims.

Video Transcript

JOSH SCHAFER: My play today is Block shares rising as the company responds to a recent report from short seller Hindenburg Research. Block saying in its second response to Hindenburg since that report, that 44 million of its 51 million monthly active customers on Cash App are verified through its identity verification program.

Block states that 44 million number represents roughly 97% of Cash App inflows in December 2022. Now only 39 million of those accounts are attached to unique social security numbers. So about a five million difference there. Hindenburg Research claimed 40 to 75% of Block users were fake. Obviously, a big discrepancy from what Block is saying there.

And another key point from Hindenburg that could still be under question, Hindenburg had cited Block's reliance of bad actors and criminals as a key part of Block's business. Block said it froze 2.4% of accounts in 2022 through its security protections. Mizuho analyst Dan Dolev says in his research today that Block's response was a positive note.

But he is still wondering how much of that criminal activity is part of the gross profit. He thinks they still have some questions to answer come the earnings call when we finally hear from Block again, and there'll be more questions, I think, asked to them.

DAVE BRIGGS: There is no question there are more-- more answers that need to come, but DA Davidson got a head of this a couple of days ago. Two days ago, in fact, saying, it's a compelling short-term buying opportunity because they believe Hindenburg cases and I quote, "considerably weaker than the market reaction implied."

They also added that Hindenburg's fraud claims were grossly overstated. Again, that was independent. That was DA Davidson ahead of Block's response today, Seana.

SEANA SMITH: Yeah, certainly. And I think resoundingly on the street, they are taking this as very positive, just in terms of some of the concerns that have been raised from Hindenburg. Ever since then-- this response here from Block, obviously, putting some of those concerns to rest. You were right, though, because Dolev wasn't the only person to bring up the fact that we probably will need to hear more when it comes to some of that fraudulent activity.

The analyst at KBW was also raising some of those concerns, but again, had a more positive outlook just given the high number of active users right now and how much that really translates to the number of transactions.

JOSH SCHAFER: And I'll add, Dave, I just look for shares are about $5 cheaper now than when they were before the Hindenburg Research report. So that's sort of what DA Davidson is going off of there. Slow climb back up, but they're still about $5 cheaper than before the report.