Square Stock May Be on Wall Street's Chopping Block InvestorPlace - Stock Market News, Stock Advice & Trading TipsThe trend is no friend of SQ stock, and Jack Dorsey's cryptocurrency obsession won't necessarily curry favor with investors.The...
This story originally appeared on InvestorPlace
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Sometimes, it's fun to think about the good old days. Remember when Block (NYSE:SQ) was known as Square, not too long ago? SQ stock holders could simply view the company as an app-based credit-card reader business.
Then, things got complicated. CEO Jack Dorsey decided to "pull a Zuckerberg" and suddenly change Square's name to Block. That's when the trouble started, it seems.
Whether the long-time investors liked it or not, Dorsey re-branded the company and changed its focus. It's probably not a coincidence that soon afterward, SQ stock started to collapse.
Some folks might try to pull off a rescue mission and buy Block shares while they're down. However, this isn't the time to be a hero. Over the coming months, Dorsey's abrupt shift could lead to the continued downfall of a once-promising payments processor.
SQ Stock at a Glance
In 2021, the bulls had a dream of breaking SQ through the resistance level of $275. That dream is now much less realistic, and the sellers on Wall Street have completely taken over.
Don't try to blame the weakness in Nasdaq tech stocks for Block's problems. Heck, Block isn't even listed on Nasdaq (though some folks might assume that it is).
There's no denying it: in what might be called a "Wall Street referendum," the investors have effectively cast their votes by dumping their Block shares.
After getting rejected at $275 for the third time in November 2021, SQ stock commenced on a relentless downturn that would persist into 2022. Now, the share price is below the $100 per share mark at $98.
From both the technical and psychological levels, falling through $100 is devastating. After this, the next stage could be capitulation. Do you really want to be in the trade with this occurring?
Dorsey's Obsession
It's disheartening to witness Dorsey lose sight of the simple but effective business model that once made Square/Block a great company.
Lately, it appears that Dorsey may be obsessing over cryptocurrency too much, and particularly Bitcoin (BTC-USD). It's gotten to the point where the Cash App — which is what made the company successful in the first place — is scarcely the focus anymore.
This isn't to suggest that Dorsey's unhinged, but the extent of his new focus is worrisome. Late last year, he started tweeting ominous statements like, "Hyperinflation is going to change everything. It's happening," and, "It will happen in the US soon, and so the world."
These types of declarations are more appropriate for a conspiracy theorist than a CEO of a major company. Does Dorsey realize that hyperinflation means inflation-rate growth of 50% per month?
A Roadblock to Profit Potential
Another relevant question is: did Dorsey consider the impact on the shareholders of having Block delve so deeply into cryptocurrency?
After the re-branding, SQ stockholders now have to worry about the price of Bitcoin crashing. Square's share price was relatively stable, but Block shares have been volatile and it's evident that Bitcoin's gyrations are a contributing factor.
InvestorPlace contributor Dana Blankenhorn summed the problem up concisely, saying, "Dorsey's fortune, which was almost $15 billion as recently as October, has plunged to $6.6 billion as of Jan. 26… In recent months, his image has morphed from that of a visionary tech executive to cranky cryptocurrency advocate."
In other words, Dorsey is self-destructing while also losing credibility among the financial community.
And by the way, under Dorsey's "leadership," Square/Block has morphed from a moneymaker to an unprofitable business.
As evidence of this, note that during the three months ended Sept. 30, 2020, Square/Block reported net income of $36,515,000. Fast-forward to the same period of 2022, and the company incurred a net loss of $2,876,000.
The Takeaway
Change can be a good thing, but not in every case. Sometimes, it's best to leave a perfectly viable business model as it is, or only make moderate adjustments to it.
What Dorsey is doing is radically changing Square/Block's focus to something that he, personally, seems obsessed with. If you're a shareholder, then chances are excellent that you were never consulted about this sudden change.
Dorsey has lost big-time on this bet, and Block doesn't appear to be a winner on Wall Street. With that in mind, staying in the trade with SQ stock just doesn't appear to be a gamble worth taking.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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