Shares of financial-technology (fintech) company Block (SQ -0.14%) fell on Wednesday, along with almost every other technology stock. But don’t let today’s overall market conditions deceive you: Block is down because it was downgraded by an analyst. As of 12:45 p.m ET, Block stock was down just 4%, but it had been down 7% earlier in the trading session.
Dominick Gabriele is an analyst with Oppenheimer. And according to The Fly, Gabriele believes Block stock is poised to only do as well as the market average, not better than average as he previously believed.
Gabriele has fundamental reasons to be less enthusiastic than other analysts. Specifically, the analyst believes Block’s Square segment could struggle in the near future, and he also believes that downloads for Block’s Cash App have slowed down.
For those unaware, Block provides fintech services to many small- and medium-sized businesses through its Square ecosystem. And with many economists predicting an economic recession in the U.S. in 2023, it’s possible these could do poorly, hurting Block.
That said, Block has been gaining new customers, and existing customers have been increasing the number of software products they’re paying for. So perhaps these gains can be enough to offset any weakness brought on by the economy.
With Cash App, Block added 2 million new monthly active accounts during its most recent quarter, good for about a 4% quarter-over-quarter gain. However, Cash App accounts using the Cash App card are growing at a faster rate, and these tend to be better revenue drivers for Block.
In other words, Block’s most recent financial results looked strong, so keep in mind that Gabriele’s outlook is somewhat contrarian, even though it’s based in fundamental reasoning.
Block is expected to report financial results next on Feb. 23.