Morningstar says Hindenburg’s claims are “largely anecdotal”Emma...

Morningstar says Hindenburg’s claims are “largely anecdotal”

Emma Rapaport

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Morningstar equity research director Brett Horn says the claims in short-seller Hindenburg’s report into Block are “largely anecdotal”, maintaining his fair value estimate of US$104 per share.

“Hindenburg believes the Cash App platform is being used to perpetrate criminal activity, and that the company has turned a blind eye to this fact. Their report raised a number of examples along these lines, but the evidence appears almost entirely anecdotal,” he said.

“In our view, the fact that rappers reference using Cash App for fraud in their lyrics is not compelling evidence of widespread issues. More potentially troubling are claims that Block is not only aware of widespread fraud on its platform but is complicit in developing internal procedures and weak compliance measures that make it easy to use the platform for fraud.”

“Further, Hindenburg claims that Block is artificially inflating user metrics. These claims, however, appear to rest almost entirely on claims from former Block employees, who may be biased against the company.”

Horn warns however that if any of the claims are true, or perceived as true, this could trigger a regulatory response.

Morningstar has a ‘very high’ uncertainty rating for Block due to the Cash App business.

“We think the long-term economics of this business are very difficult to predict, and that a significant factor is that the regulatory framework for the P2P space is far from settled,” Horn said.