Saddle up partners, there’s a new sheriff in town. 🤠 Short seller Hindenburg Research has been making a strong impression on the financial frontier, targeting companies they think are just not up to muster. Short sellers make money when share prices fall. Earlier this year Hindenburg accused colossal India conglomerate Adani of being ‘the largest con in corporate history’, news that wiped US$140 billion off the company’s market valuation. 📉
Last week Hindenburg changed their target. 🎯 They set their sights on Jack Dorsey’s super app company Block (SQ) issuing a stinging report against a number of Block-owned companies. The list includes Block’s US$29 billion Buy Now, Pay Later (BNPL) and TikToker’ darling, AfterPay, which Hindenburg claims is flopping as people buy less and increasingly fail to pay later.
But it’s Block’s peer-to-peer payments system Cash App that has drawn the most fire from Hindenburg. 💥🔫 The short seller alleges not only that Block has been overstating their number of users, but that the platform has become the Wild West for drug dealing criminals and gangsters. Hindenburg alleges the app is so popular with outlaws that a gang was named after it. Could there be a reason Cash App is name-dropped in crime-related rap lyrics?! Smoke… fire? 🔥
This is a big deal for Block. Cash App made up around half of the company’s gross profit in 2022, and the news swiftly took a chip off the old Block’s share price, sinking it 20%. 🪓
Block fired back with their own Eagle butt peace-maker denying the allegations and calling them ‘factually inaccurate and misleading’. But when Hindenburg rides into town with news, investors tend to listen. The investment research firm has a growing track record. In 2020, Hindenburg accused electric truck maker Nikola (NKLA) of being a ‘fraud built on lies’. Shortly after, Nikola founder and CEO Trever Milton was arrested and convicted of, erm, fraud. That’s one outlaw that won’t be riding off into the sunset anytime soon. ☀️