Federal prosecutors are probing financial transactions at Square parent Block including Cash App and bitcoin, according to a report. Square stock tumbled on the report, a day before first quarter Square earnings are due.
On the stock market today, Square stock fell 8.4% to close at 66.84. With Wednesday's loss, SQ stock is down about 13% in 2024.
According to an NBC news report, "Federal prosecutors are digging into internal practices at Block, the financial technology firm launched by Twitter co-founder Jack Dorsey, discussing with a former employee alleged widespread and yearslong compliance lapses at the company's two main units, Square and Cash App."
The NBC news report also said: "Most of the transactions discussed with prosecutors, involving credit card transactions, dollar transfers and bitcoin, were not reported to the government as required."
In its core businesses, Square stock operates a two-sided digital payments ecosystem, with products designed for both merchant sellers and consumer buyers.
If the probe results in Block being penalized, Macquarie analyst Paul Golding in a report said: "We see more potential for fines and/or behavioral remedies like more robust oversight teams/infrastructure, as opposed to something structural like limitations on the types of business it (Block) can do."
Short-seller Hindenburg Research last year alleged that Block had inflated Cash App user metrics and facilitates fraud.
Square stock: Q1 Earnings Due
First quarter earnings for Square stock are due after the market close on Thursday. Analysts expect adjusted profit to jump 80% to 72 cents per share. Analysts polled by FactSet expect revenue to climb 17% to $5.83 billion, including Cash App transactions.
Wall Street analysts also view gross profit and earnings before interest, taxes, depreciation (EBITDA) and amortization as key metrics for the digital payments firm. Analysts predict gross profit of $2.02 billion and EBITDA of $591 million.
In addition, Square stock holds an entry point of 80.29 from a cup base. Also, SQ stock trades well below its 50-day moving average.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
