Cathie Wood’s ARKK funds were big buyers of Block (NASDAQ:SQ) stock on March 23, supporting CEO Jack Dorsey against a short report from Hindenburg Research.
Wood’s funds bought 300,000 Block shares while they were falling 15%. The largest fund, ARK Innovation (NYSEARCA:ARKK), bought 275,000 of those shares. The same day, her funds sold shares of Tesla (NASDAQ:TSLA) and Exact Sciences (NASDAQ:EXAS), while buying Teledoc (NASDAQ:TDOC) and Coinbase (NASDAQ:COIN).
Block was formerly known as Square. It’s a transaction processor that has expanded in recent years into banking, stock trading and cryptocurrency.
SQ Stock: The Hindenburg Report
ARK Innovation has been buying Block stock steadily since March 13. It took the Hindenburg attacks as a buy signal. The fund has bought nearly 600,000 shares in March alone, worth over $36.6 million. Block has a market capitalization of $37 billion.
Hindenburg claims 40-75% of accounts reviewed by former Block employees it interviewed “were fake, involved in fraud, or were additional accounts tied to a single individual.” It called the company’s Cash App a hub for illegality. The report also attacked Block’s policies on interchange fees and its Afterpay acquisition.
Even before factoring in the charges, the report said it sees a downside risk of 65-75% for Block shareholders. Hindenburg also criticized stock sales by Dorsey and other executives amounting to over $1 billion.
Block stock took off during the pandemic, rising from $38 per share to a high of about $275. The bear market in tech during 2022 took out most of those gains. While shares of Visa (NYSE:V) are up slightly over the last two years, shares in Block are down more than 70%. Shares in other transaction processors have also fallen hard over the last year.
Wood says she invests in “disruptive innovation.” The path of ARK Innovation, Wood’s largest fund, mirrors that of Block stock. It peaked at over $152 in 2021 and now sells for under $40.
What Happens Next?
The market is evaluating the Hindenburg report, but regulators are bound to follow. Hindenburg’s previous report, on the Adani companies, cut founder Gautam Adani’s fortune nearly in half. Dorsey is worth about $4.2 billion.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
