Shares of fintech company Block (XYZ) are down by more than 20% at the time of writing as they head for their second-worst day ever. This comes after a disappointing Q1 report and a wave of analyst downgrades. For reference, Block missed expectations on revenue, gross profit, and payment volume, and lowered its full-year forecast. However, the main concern was its Cash App, where user growth stalled and consumer demand weakened. As a result, several firms, including Wells Fargo, Seaport, BMO, and Benchmark, downgraded the stock. Indeed, Benchmark noted that the stagnant user numbers were even more worrying than reduced spending.
Interestingly, CEO Jack Dorsey admitted that the company had not focused enough on growing its network and that it needs to increase peer-to-peer usage. Although Cash App’s gross profit grew by 10% year-over-year to $1.38 billion, it still missed the $1.42 billion target. In addition, monthly active users stayed flat at 57 million, and inflows rose by only 8% despite new features like Afterpay and new banking options. This led to Wells Fargo saying that it sees “monetization red flags,” while Seaport noted that there have been multiple quarters of falling payment volume.
Nevertheless, some analysts remained optimistic, as Bank of America kept its Buy rating. At the same time, Morgan Stanley said it sees the pullback as a chance to buy. It is also worth noting that Block will now attempt to make a comeback by focusing on lending. In fact, Cash App Borrow, which is now FDIC-approved to issue loans, is expected to double the number of eligible users and improve margins. Marketing spending will also rise by 50% in Q2 in order to help reaccelerate growth later this year. However, Benchmark said it was not confident enough to recommend buying the stock.
What Is the Price Target for XYZ?
Overall, analysts have a Strong Buy consensus rating on XYZ stock based on 26 Buys, four Holds, and one Sell assigned in the past three months, as indicated by the graphic below. Furthermore, the average XYZ price target of $77.19 per share implies 69.4% upside potential.
