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Block hit by market turmoil and Afterpay indigestion

Jun 21, 2022

Photo Illustration: Sarah Grillo/Axios. Photo of Block CEO Jack Dorsey: Burhaan Kinu/Hindustan Times via Getty Images

Block's market value is dropping steadily, cut in half since April.

Behind the scenes: A lot of fintechs are suffering the same. But what's unique about Block's rout is that it comes as it's not only being slammed by a market storm, but digesting the $27 billion purchase of Afterpay.

  • Integrating Afterpay and plugging the buy-now-pay-later into Block's system is critical to the success of both the deal and the combined company.
  • The value of the stock deal was $29 billion at announcement in August, and closed at a value of $27 billion early this year.

Of note: Block's (formerly Square) market value when it inked the Afterpay deal was around $120 billion. It's now just above $30 billion, or darn close to the value of the entire Afterpay purchase.

  • Investors are keenly aware of that fact, and so, apparently, is activist hedge fund titan Dan Loeb. Research firm Gordon Haskett pointed out in a note that Loeb, in a tweet reply, made mention of that stark value drop by Block.
  • A person familiar with the matter pointed out that Block's ability to parse through Afterpay's loans and move from one balance sheet to another is a much more arduous process than anticipated.
  • Rising interest rates are also playing a role in the indigestion, the person said.

The bottom line: If Block isn't able to pull off this integration faster, and build its market value back up, it, too, may be the target of a well-capitalized suitor. At the very least, it may have to contend with the kind of activist investor ire that Third Point's Loeb is already hinting at.

  • That said, an entity seeking to shake things up at Block needs to get past Jack Dorsey's majority ownership of the company.
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