Block delivers blowout quarter despite Hindenburg's skepticism

• Short seller Hindenburg accused Block of overstating users in Cash App, causing a 22% drop in shares.
• 2 Despite the pessimistic scenario, Q1 2023 report has been positive.

Jack Dorsey’s Block reported upbeat Q1 earnings on May 4, with revenue rising 8.58% despite Hindenburg’s false claims. The short seller accused the San Francisco-based fintech firm of overstating its user count of the Cash App platform by allowing duplicate or fake users to exist. This caused a drop of 22% in Block (NYSE: SQ) shares. The company denied the allegation and would be exploring legal options against Hindenburg.

Block Report Positive Earnings Despite Hindenburg Backlash

Block ($SQ) was trading at $59.25 with a drop of 1.95%; previous close and open were at $60.43 and 60.64, respectively. The market cap was reported to be $35.84 Billion. They reported earnings on May 4, 2023, with an estimated revenue of $4.596 Billion. Still beating expectations, it was said to be $4.99 Billion, with a surprise of $394.129 Million and a gain of 8.58%. This number outperforms the previous year by 26%.

The 52-week change was with a drop of 29.35%, and as per March 2023 data, operating expenses grew 19.50% to $1.74 Billion; net income hiked by 91.75% but is still negative $16.84 Million. The net profit margin increased by 93.41% to negative $0.34. The earnings per share jumped by 122.22% to $0.40, and EBITDA gained 196.24% to $87.00 Million.

The growth can be attributed to its peer-to-peer transaction Cash App, which offers merchant payments and lets users trade in crypto. It generated a gross profit of $1.71 Billion in Q1 2023, which is a hike of 32%. Also, a few days ago, Block announced moving ahead with the prototype of a five nano-meter Bitcoin mining chip, decentralizing the mining rig or equipment arena.

Short sellers like Hindenburg typically sell borrowed securities to repurchase them at lower prices. Block CEO Jack Dorsey says that the fintech company will be focused on strategies and prioritization. The firm has a compelling roadmap to walk on, and everyone in the ecosystem follows it.

The revenue growth at Block has been moderate in the last few quarters, probably due to rising inflation in the United States. Such scenarios deter consumers from indulging in big-ticket purchases. In its previous earnings report, the firm argued about purposefully slowing down the hiring process to control the costs better.

CMP is very close to the major low of $51.11; even the Hindenberg report failed to push the price below that. Block already reported positive earnings, and if the price crosses the downward-sloping trend line, it will face immediate resistance at $70.54.

There are chances of consolidation between the two points; however, if it breaks the immediate resistance, the price might cross R1, present at $77.91, and could even beat R2 at $88.85. But if the price drops below $50.00 long, this would create trouble for long-term investors