Block (NYSE:SQ) shares fell more than 2% intra-day today after Morgan Stanley downgraded the company to Underweight from Equal Weight, pointing out the company’s limited growth potential in banking and credit services through its Cash App. The price target for Block was also cut from $62 to $60.
The analysts expressed skepticism towards the prevalent market sentiment that Block can significantly boost its margins through cost cuts while maintaining high gross profit growth for Cash App and reviving the Square Seller’s growth. Morgan Stanley’s analysis, focusing on the demographic trends of Gen Z and millennials in the U.S., suggests Cash App’s growth could plateau due to its already widespread adoption and the minimal impact of potential new services like credit cards.
Contrary to optimistic forecasts, Morgan Stanley questioned Block’s capability to reinvigorate growth in its Square Seller segment due to foreseeable challenges. The firm adjusted its gross profit prediction for Cash App downwards to $4,906 million for 2024, a reduction from their earlier $4,993 million estimate and below the market consensus of $5,054 million.