Block (SQ) - ★★★★ - Ranked #19 in our Q2 2024 Large Cap Equity Rankings
Shares of digital payments company Block, Inc. (SQ) fell 6% on Thursday following a downgrade from analysts at Morgan Stanley. The investment bank lowered its rating on Block stock to Underweight from Equal-Weight and cut its price target from $62 to $60 per share.
In the downgrade note, Morgan Stanley analysts expressed doubts about the ability of Block's popular Cash App platform to continue growing, particularly among Gen Z consumers. "While Cash App has been a growth engine for Block, we see increasing risks to this business, especially with younger demographics," the analysts wrote.
The Morgan Stanley team cited concerns that Cash App's user growth and engagement could slow as it faces increasing competition from other peer-to-peer payment apps. They also worry that Block may struggle to monetize its younger user base as effectively as it has with older demographics.
Thursday's sell-off adds to Block's woes so far in 2024. The stock is now down 3% year-to-date, significantly underperforming the broader S&P 500 index. Block had been a pandemic-era darling, with its shares surging over 250% in 2020 and 2021 as the boom in digital payments accelerated.
However, the stock has struggled recently as investors grow more cautious on the company's growth outlook. The Morgan Stanley downgrade is the latest sign that Wall Street is growing more concerned about potential headwinds facing Block and its popular Cash App platform.
Despite the recent pullback, Block remains one of the largest and most prominent players in the fast-evolving digital payments space. Investors will be watching closely to see if the company can overcome the challenges highlighted by Morgan Stanley and maintain its rapid pace of growth in the periods ahead.
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