Hindenburg: Block Has Inflated User Metrics and Enabled Insiders To Cash Out Over $1 Billion (hindenburgresearch.com) 33
Short seller Hindenburg Research, on Block: Block, formerly known as Square, is a $44 billion market cap company that claims to have developed a "frictionless" and "magical" financial technology with a mission to empower the "unbanked" and the "underbanked." Our 2-year investigation has concluded that Block has systematically taken advantage of the demographics it claims to be helping. The "magic" behind Block's business has not been disruptive innovation, but rather the company's willingness to facilitate fraud against consumers and the government, avoid regulation, dress up predatory loans and fees as revolutionary technology, and mislead investors with inflated metrics. Our research involved dozens of interviews with former employees, partners, and industry experts, extensive review of regulatory and litigation records, and FOIA and public records requests.
Most analysts are excited about the post-pandemic surge of Block's Cash App platform, with expectations that its 51 million monthly transacting active users and low customer acquisition costs will drive high margin growth and serve as a future platform to offer new products. Our research indicates, however, that Block has wildly overstated its genuine user counts and has understated its customer acquisition costs. Former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual. Core to the issue is that Block has embraced one traditionally very "underbanked" segment of the population: criminals. The company's "Wild West" approach to compliance made it easy for bad actors to mass-create accounts for identity fraud and other scams, then extract stolen funds quickly.
Even when users were caught engaging in fraud or other prohibited activity, Block blacklisted the account without banning the user. A former customer service rep shared screenshots showing how blacklisted accounts were regularly associated with dozens or hundreds of other active accounts suspected of fraud. This phenomenon of allowing blacklisted users was so common that rappers bragged about it in hip hop songs. Block obfuscates how many individuals are on the Cash App platform by reporting misleading "transacting active" metrics filled with fake and duplicate accounts. Block can and should clarify to investors an estimate on how many unique people actually use Cash App.
Most analysts are excited about the post-pandemic surge of Block's Cash App platform, with expectations that its 51 million monthly transacting active users and low customer acquisition costs will drive high margin growth and serve as a future platform to offer new products. Our research indicates, however, that Block has wildly overstated its genuine user counts and has understated its customer acquisition costs. Former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual. Core to the issue is that Block has embraced one traditionally very "underbanked" segment of the population: criminals. The company's "Wild West" approach to compliance made it easy for bad actors to mass-create accounts for identity fraud and other scams, then extract stolen funds quickly.
Even when users were caught engaging in fraud or other prohibited activity, Block blacklisted the account without banning the user. A former customer service rep shared screenshots showing how blacklisted accounts were regularly associated with dozens or hundreds of other active accounts suspected of fraud. This phenomenon of allowing blacklisted users was so common that rappers bragged about it in hip hop songs. Block obfuscates how many individuals are on the Cash App platform by reporting misleading "transacting active" metrics filled with fake and duplicate accounts. Block can and should clarify to investors an estimate on how many unique people actually use Cash App.
Re:Why are you contributing to this short seller? (Score:5, Insightful)
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There is an obvious conflict of interest here. Hard to trust a damning report made by a company whose entire business model is based on shorting the companies it is reporting on.
Re: Why are you contributing to this short seller? (Score:3)
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Short sellers do the investigative work to detect fraud and mismanagement. Like for FTX, Silvergate, SVB. In economic theory, their work ensures proper allocation of capital (that is, to productive endeavors, not frauds).
True, but...
"The difference between theory and practice is that in theory there is no difference, while in practice there is."
In the case of short sellers, the practice often is that they actively poison productive businesses (by spreading false information) in order to make a profit on the subsequent failure.
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use google.
There have been many very public cases of short-sellers spreading false rumors about companies in an attempt to profit.
-I think the favorite examples discussed on slashdot were about Tesla shorts.
The short-sellers did not bring to light the failures of FTX, Silvergate, or SVB. Your beating that drum is a red-herring.
Re: Why are you contributing to this short seller? (Score:2)
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Re:Why are you contributing to this short seller? (Score:5, Interesting)
Actually read their analysis. There's quite a lot of publicly available facts, such as the hype on the platform giving them a 60X multiple over EBITDA vs. their competitor, Paypal, trading at 16X over multiple. In all other metrics compared to competitors like Paypal, which is profitable, or Affirm or Robinhood, Block is overvalued significantly. And that's before you get into their investigative work regarding their fraud.
Then you look how they're accounting for profit, and they are increasingly using non-GAAP accounting practices to make them look profitable. GAAP is important to make sure everyone is reporting according to the same rules, so if they have to break the rules to look profitable, that's not a good sign.
Then there's Jack Dorsey talking about the 30+ rap songs that mention Cash App as "a sign that people feel it's so valuable and provides os much utility that they want to sing about it." Except when you listen to the songs they describe using Cash App to pay for murder for hire and drug transactions. Cash App has been claimed the primary way that transactions in human trafficking and sex trafficking take place by several human rights non-profits and has been called out as the method of payment in indictments from the US Attorney's office.
So... yeah. This doesn't sound like a growth opportunity; it sounds more like a dumpster fire of a stock. SHort sellers who are good at what they do are good because they do their homework; that's what this looks like.
Re:Why are you contributing to this short seller? (Score:5, Insightful)
"Hindenbug is known to be in it for themselves "
As opposed to other investment firms who have no interest in making money?
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Re:Why are you contributing to this short seller? (Score:5, Informative)
Hindenburg Research does deep-dive research to find companies engaged in fraud or other financial malfeasance. They then sell short or otherwise take a large downside position in the company and publish their findings. They are very good at what they do.
They exposed financial and product fraud at Nikola. E.g. In their ad showing their EV truck, it was rolling down a hill and couldn't move under its own power. (..and it still couldn't, more than a year later.) They also found fraud in how they described their manufacturing maturity and financial reporting. Nikola's CEO was subsequently arrested.
They exposed that LOOP's "Proprietary process for recycling post-consumer plastic to pure monomer" didn't actually work. The company is now facing charges from the SEC.
They exposed Lordstown Motors thousands of committed vehicle pre-orders didn't exist. The CEO resigned.
IMHO Hindenburg is out there doing the job the SEC should be doing to hunt down and shut down the frauds and Charlatans. I have no issue with them profiting from that.
They aren't perfect. They thought the Twitter buyout wouldn't happen and took a short position. They flipped on that, changed their positions from shorts to longs, and announced it when they did.
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I haven't been tracking that one closely, as I'm not in that market. Did they turn out to be correct?
(I'm asking this in ignorance, not racism, please be gentle.) :/
Does India have an organization like the SEC that investigates and punishes financial fraud? I have to assume they do, but I guess I'm really asking "Are they effective?". Our SEC is hit-or-miss in this regard.
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Patrick Boyle covered the Adani group and Hindenburg Research's take on them in a nice video:
https://www.youtube.com/watch?... [youtube.com]
I highly recommend Patrick's many videos on financial events, both historical and current.
Jack Dorsey overstating users? (Score:5, Interesting)
Wow who would have thought that a company led by Jack Dorsey would overstate its user count? Twitter is so famous for having always being 100% honest about how many human users it has. Also for the other constituents of this company: it's almost 6 years ago that Tidal was caught defrauding investors for inflating user counts. I think it's unfathomable that would happen again. You know what they say: once a thief, never a thief again.
Brought to you by (Score:2)
Jack Dorsey
Whats this got to do with (Score:2)
burning zeppelins ?
And this is a surprise because? (Score:5, Insightful)
I thought that "(taking) advantage of the demographics it claims to be helping", "(facilitating) fraud against consumers and the government, (avoiding) regulation, (dressing) up predatory loans and fees as revolutionary technology, and (misleading) investors with inflated metrics" was just the way business is being run these days.
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Block's CEO will probably be tapped to be the next Secretary of the Treasury or FED Chairperson or something.
There's actually been a couple of companies (Score:2)
Ahh yiss (Score:2)
So next up, AI user message swamping.
Normal (Score:3)
"Hindenburg: Block Has Inflated User Metrics "
Of course it used metrics, it's a European Zeppelin.
Meh. (Score:2)
Jack Dorsey (Score:2)
Jack Dorsey at the helm of another company suspected of egregiously bad behavior? Say it ain't so...
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I think the point was Block made a lot of shit up.
It gets worse ... (Score:2)
Wait ... its not that Hindenberg, is it?