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There is a time when investors get inspired by companies’ fanciful visions of the future, when they are willing to give a CEO some rope to make wild bets that might not turn a profit for years. And then there’s now.
The case of Block (ticker: SQ) makes that clear. Jack Dorsey, the leader of the payments company, said June 10 that a subsidiary is building a decentralized platform, called “Web5,” that is meant to give users the ability to control their own data and identity.
Investors’ reception to the announcement has been lackluster, to put it nicely. Shares of the company, which was previously called
Square
,
have slumped 10.4% this week, compared with a 1.4% drop for the
Nasdaq Composite
index. Block has lost nearly two-thirds of its value this year.
A lot of the pressure on the stock comes from an ill-timed pivot from Block’s bread-and-butter business as a payments company to the blockchain. Dorsey, who used to also run
Twitter
(TWTR), has been an outspoken supporter of Bitcoin. At the end of March, Block held $365.5 million of the digital token on its balance sheet, but the price of Bitcoin has plummeted nearly 55% to $20,625 since then.
Dorsey has also been an outspoken critic of “Web3,” an amorphous sector of venture-capital-backed companies, blockchains, and tokens that is attempting to rebuild much of the modern internet in a more decentralized manner. Dorsey and others think that Web3 is in reality just pseudo-decentralization, with power concentrated in a few major platforms and VC firms. (There is no “Web4”; Dorsey just skipped that number.)
Block says they want to build Web5 on top of the Bitcoin network, giving users control over their own finances and data. That might sound good, but for now, investors aren’t getting much more than a slide deck and a few snarky tweets. (Dorsey wrote “RIP web3 VCs” in one missive.) They are nonplused.
“It’s very, very good to have a company that is the most innovative name in payments and moving one step ahead of everybody else,” says Mizuho senior analyst Dan Dolev, who has a Buy rating on the stock. “The negative here is that the CEO spends so much time on Bitcoin that it begs the question of how much time does he have to care about the business.”
The company didn’t immediately reply to a request for comment.
Block’s bread and butter, Dolev notes, is its Cash App, which was released in 2013 and has become an important payments service for some 80 million users. If Block wants to become a rival to traditional finance giants like
JPMorgan Chase
(JPM), the company would be well served to build out more services and seek growth in that audience, rather than focusing on a Bitcoin diversion, Dolev says, especially in the current market environment when the most speculative bets are frowned upon.
“People want to see profits. People want to see real revenue. People don’t have an appetite for something that’s going to be relevant in five years, and you see that in the stock price,” Dolev says.
Of course, the naysayers might look silly in five years. “Calling Block a payments company is like calling
Amazon
a bookseller,” Block Chief Financial Officer Amrita Ahuja told CNBC in a May interview.
Stock watchers, including those at Barron’s, famously cast doubt on Amazon.com (AMZN) as it faced competition from other retailers. But instead of stumbling, the company built out an entirely new cloud-computing service, among other extremely successful business lines.
Still, the sort of forward-thinking optimism needed to believe in Block’s eventual success, and to lift the stock over the near term, might just be in short supply among investors for the foreseeable future.
Write to Joe Light at joe.light@barrons.com
Read More: Jack Dorsey Is Pitching Web5. It Won’t Lift Block’s Struggling Stock.