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Block (NYSE:SQ) stock slid 2.1% in Monday morning trading after KBW analyst Steven Kwok downgraded the parent of Square payment systems and Cash App to Market Perform from Outperform as multiple risks are adding up.
“The big items revolve around rising competition within acquiring, and potential for regulatory scrutiny within its Cash App segment,” the analyst wrote in a note to clients. He also pointed out that the company is reliant on income streams that are “increasingly being viewed as not-so rock solid including instant deposit fees and unregulated interchange.”
Buy Now Pay Later lending, popular among nonprime consumers, “is another area we are increasingly worried about,” Kwok wrote.
A short report issued last month against the company could potentially trigger regulatory attention on Block’s (SQ) Cash App, which could hinder the app’s growth and add to costs, he said.
“To be clear, we remain big fans of the company’s multiple ecosystems from a product perspective. And this could lead to long-term success which motivated our prior Outperform rating,” Kwok added.
Note that on March 30, the SA Quant system shifted down to Hold from Buy on Block (SQ) as its grades on valuation and profitability worsened. SA Analysts also have an average rating of Hold on the stock.
More on Block and the recent short report: