Blockchain has ‘huge potential’ but has failed to focus on Bitcoin, the analyst says

Block Inc. Suffering from creative block?

That appears to be the takeaway from Mizuho’s memo Thursday, as analyst Dan Dolev downgraded shares of Square’s parent company and pointed to executives in Block SQ.
They were focused on the wrong things.

“After years of being correctly guessed A brand new name in payments, We believe user fatigue, high turnover, and loss of best-of-breed POS. [point-of-sale] condition, and BNPL [buy-now-pay-later] misexecution is hindering SQ’s growth,” Dolev wrote in a research note, downgrading Block’s stock from buy to neutral.

Block “still has great potential” in his view, but he doesn’t think he’s doing enough to take advantage of his opportunities. The company acquired Afterpay earlier this year, but Dolev said that buy-now-pay-later estimates “continue to come down.” Additionally, while bitcoin BTCUSD,
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Contributing to less than 5% of the block’s total profits, cryptocurrency-related projects “seem to attract a disproportionate amount of management attention,” Dolev said.

“A review of stock behavior shows that bitcoin is closely tracked,” he wrote. “This will unfortunately distract both management and investors from focusing on SQ’s broader ecosystem.”

Read: These companies jumped on the crypto bandwagon when times were booming. Which ones are exposed in the fall?

Dolev is also concerned about other factors, including a recent slowdown in net additions. Declining net incremental growth comes even as customer acquisition costs increase.

Dolev’s downgrade follows one from SMBC Nikko Securities America analyst Andrew Bauch, who downgraded his rating on the stock a day earlier. Bauck said investors may overlook “secondary factors” in the company’s bitcoin trading behavior, such as the impact of the crypto’s nature on revenue streams.

A user of the cash app suggested that Block could benefit when the price of bitcoin rises, as selling bitcoins can flow into the app that could otherwise be monetized. “Unfortunately, now that the price of bitcoin is ~70% higher than its value, we suspect that the reverse dynamics is taking place,” he wrote.

Block shares fell 3.3% in Wednesday’s session and fell another 4.6% in Thursday morning trading.

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