Well, arcade Fest Just bought some more Square block stock and now all of a sudden Hindenburg has disclosed a short position on the 44 billion dollar or once 44 billion dollar company Square. And I say that because in the pre-market Well, let's just say Square is not very happy. It's actually dragging Coinbase down even more as well. Coinbase was down 11 in pre-market Now it's down about 15.

but forget about coinbase. Hindenburg Research has disclosed a big fat short position on Square Square was down six percent yesterday. Makes you wonder who knew the Hindenburg report was coming now. Square stock is down 19.5 percent and after Hindenburg research discloses their short position.

This comes after their last mega short on the Adani network, which was a massive short investigating the fraud or potential fraud of Shell companies being used to massively profit off of Adani stock in. India Hindenburg Research was also the company that exposed Nicola for the fraud that it was rolling their truck down a hill and and implying the truck was actually powered by a hydrogen power Uh engine which was all a fraud. Now, Square is apparently being accused of quote fraud facilitation and Hindenburg is suggesting that Square stock could fall as much as 65 to 75 percent based on the findings in their research. Well folks, make sure you get yourself life insurance because we need to buckle up and get into this.

Research into Hindenburg and you can get that life insurance by going to Metcavin.com Life. If you sign up I make a little little bit and you get awesome life insurance, you can Apple pay and Android pay for it. Make your life simple and put it on autopay. It's what Uh, Lauren and I use to pay for our life insurance.

So check them out by going back. Kevin.com Life All right! Block, formerly known as Square, is a 44 billion dollar market cap company that claims to have developed frictionless and magical Finance technology with a mission to empower the unbanked and underbanked. Our two-year investigation into Block has concluded that Block has systematically taken advantage of demographics it claims to be helping. The magic behind Block's business is not Innovation, but rather the company's willingness to facilitate fraud against customers in the government uh, to avoid regulation and dress up predatory loans and fees as revolutionary technology and mislead investors with inflated statistics.

Our research involves dozens of interviews with former employees. You have to be careful with interviews unless they can provide evidence, so we'll take a look at that, as well as litigation, records and Foia requests. Most analysts are excited about the post-pandemic surge of Blocks cash app. That's true during the Stemi days, man.

Square was exploding. Our Research indicates, however, that Block has wildly overstated its genuine user counts and has understated customer acquisition costs. Former employees estimate that 40 to 75 percent of the accounts they reviewed were fake, involved in fraud, or were additional accounts tied to single individuals. Uh, yeah, but that's not necessarily wrong.

I mean if Square comes out and says hey, we opened a million new accounts and half of those are people making a savings account at a stock account I mean that that is accurate, right? That's incumbent upon the investor to realize the same person can have multiple accounts. That's not necessarily fraud. So I Want to see where this fraud is core to the issue is that Block has embraced one traditionally very underbanked population: criminals. Oh okay, let's see when users are caught engaging in fraud.

Uh, they didn't ban a user. They showed how blacklisted accounts were regularly associated with dozens or hundreds of active accounts suspected of fraud. A phenomenon of allowing blacklisted users was so common that rappers bragged about it in hip-hop songs. Okay, Jack Dorsey is publicly talented.

How cash app is mentioned in hundreds of hip-hop songs is evidence of its mainstream appeal. I paid them hitters through cash app Block paid to promote the video for a song called Cash app which describes paying Contract Killers through the app I mean some of this is probably uh, you know, designed to be hyperbole. Uh, would be interesting to see if there's actual evidence of of, uh, you know, uh, this and I'm sure there is there. I mean I'm sure every uh Bank to some extent has criminal activity that goes on.

I mean I'm sure people get zelled for crimes all the time. Uh, here's the drug money. Zell Dinner Five Thousand dollars? Yeah. Anyway, uh, let's see.

here to test this: we turned our accounts into Donald Trump and Elon Musk and we're easily able to send and receive money. Yeah, I mean I Don't know why that's necessarily had. Uh I I I I I Mean is is there something wrong with that? I mean I mean maybe I Suppose if there's a Kyc rule like a know your customer rule that requires you not have a fake name, but I mean I suppose anybody can make like a meta mask, wallet and and transact. but then again, that seems to be it.

more of the D5 space, right? So okay. interesting and those are some thoughts that would be running through my head: Former employees described how cash apps suppressed internal controls and ignored user please for help as criminal activity ran rampant on the platform. I Mean it is. It is also true that companies like tech companies don't really have the incentive to argue or to start.

Banning And closing a bunch of fraudulent accounts or potentially fraudulent accounts because it does hurt the user metrics, right? I Mean you saw the same thing with Twitter with the bot Army Well wait. Twitter happened to be founded by Jack Dorsey who's now running Square Wait a minute. Is it possible that fake accounts propping up user metrics at Twitter are also happening at Jack Dorsey's other company? Square Yeah, that's interesting. covet, pandemic, existential, uh uh, threat to merchant services in the environment? Uh, amid Cash Apps anti-compliance free for all the App facilitated a massive wave of government coveted relief programs.

I Mean that is true. No bank account needed. That's true. They let people deposit your money straight into this so people can spend it right away.

Uh, Massachusetts Sought to claw back over 69 000 unemployment payments from Cash App just four months into the pandemic. suspecting transactions at Cash Apps Uh Partner Banks were disappropriate. Okay, well, this is actually interesting because if you could make a fake account and then start claiming potentially stemi checks or unemployment through casha, that creates a really big problem. Uh, that's uh, that's that's very interesting.

That is a fair point. The data shows how I compared to uh, its Ohio competitor Cash Apps Partner bank at nearly 10x the number of applicants who applied for benefits. Yeah, so this goes back to Covet Fraud I Believe that there was a lot of covert fraud at basically every level I Definitely believe that uh, as Block stock soared on the back of its facility facilitation of fraud Jack Dorsey Collectively sold over one billion dollars of stock over the pandemic. yikes and other Executives also dumped Millions All right.

Uh, um. Okay, so Congress passed laws that legally capped interchange fees, but Block avoided these by routing payments through smaller Banks I Mean frankly, that doesn't sound like fraud. That sounds actually smart I mean to some extent, like if and I get it? I Think there's there's a legal great loophole there that they're jumping through. but Square isn't a bank, you know.

JP Morgan has a limit on the fees. They can assess you, but like smaller Banks don't because they face less regulation. That's why we're having a banking crisis right now, right? And so if you could take uh, the the money uh uh, that that people deposit with you and spread it out to multiple different small Banks and now it enables you to charge more fees I Mean that's probably part of the game I Don't know that that's necessarily fraud I Mean it's probably wrong. Uh, like that's not the intent.

but I mean even Sofi Who has its own banking licenses like we now offer two million dollars of FDIC coverage? How are you doing that? Oh well, we're going to a bunch of small Banks Exactly. So I mean that's not. That's just sort of the game that gets played that doesn't seem so terrible I'm looking for like the Smoking Gun Here you know, because usually there's something like really crazy. but so far this doesn't seem very surprising to me.

Uh, and this is I won't reiterate how I hate Financial stocks in a recession. But anyway, competitor PayPal has disclosed it's under investigation over its use of small Banks to avoid interchange fees. Yeah, but that doesn't mean it's wrong just because you're under investigation. I mean maybe a law will be passed that changes that, right? Block S 29 billion dollar deal to acquire after Pay closed in January Uh, after? Let's see here, After Pay has been celebrated as a major Financial Innovation I Mean no.

I Think it's just a great way to charge people massive interest, allowing users to buy things like a pair of shoes for or t-shirts and pay overtime, incurring massive fees of subsequent late payments are made. The big problem with Buy Now Pay Later Right now. Uh is. uh, you know the big.

The big problem with it. This is true. Well yeah, yeah, somebody's saying. Remember, their argument is whether the short them not, whether it's legal or not.

I Don't think you could say them taking advantage of a legal loophole is a reason for shorting, right? I Don't think you can argue that like taking advantage of a legal loophole like you would expect, businesses do everything they can to maximize their profits. That's why legal loopholes often exist because they Lobby to have those legal loopholes. It's all a broken rigged system. Don't get me wrong, I'm not defending the system I think how complicated things are are complicated on purpose to make the rich richer.

and I think it's disgusting. But let me say one thing for sure: you should never use Buy Now. Uh, Pay later. uh in my opinion and I've said that ironically.

but honestly, I have said that since 2021 when I first started covering a firm I'm like, let everybody else use that, but you should not use it and run from it in a recession. I've said that since day one and I still believe it like you should not use these Services they they are very, very expensive After Pay was designed as a way to avoid reasonable lending rules. uh, such as you know, basically lending without credit checks or charging higher Aprs. Yeah, but again, that's that's not illegal.

Like the fear about buying out pay later regulation has been in existence for the past two or three years. We already knew that there's nothing wrong with that. After paid delinquencies are skyrocketing. No going into a recession.

They have no collateral You think about? You think a firm is going to show up at your house to take the sneakers off your feet because you bought them with Buy now, Pay Later and now you're not repaying? No, what are they gonna do? They're gonna kick you off the platform. That's it. That's the most they can do. Uh, that's that's not a surprise.

Uh, Block regularly. Hypes Mundane, predatory sources of revenue. Uh, as technological breakthroughs such as uh, 31 of cash apps Revenue comes from instant deposit, which uh, Block says it pioneered. Every other major competitor we check provides a similar service.

Dude, it's marketing man. Oh, who cares like that's not fraud, that there's nothing wrong with that I Don't know, man. Hiddenberg, This one's pretty weak so far in a purely fundamental basis. Even before factoring in the findings of our investigation, we see a downside of 65 to 75 percent of the shares.

Maybe you do. Uh, Block is valued like a profitable Growth Company Okay, so now we're going to talk about valuation. I'll talk valuation I'll go through the valuation myself in a moment. I'll go through the valuation.

Nobody gives a crap about price. the book for a tech company, dude. come on man. uh.

and selling for a forward adjusted earnings multiple of 41? We'll look into that in just a moment. we'll look at your multiples. Uh, Block is also facing threats from competitors like Zell Venmo. PayPal No, none of this is.

News Man, we think Block misled investors on its key metrics. Look, having fake accounts? That's the biggest thing you got. So show me more about. and the CEOs selling shares? Well, you could say the same thing about Elon Musk Elon Musk Dumped 24 billion dollars on normies myself included last year.

Okay, so what? Jack Dorsey Built up a five billion dollar Fortune Good for him. Man, that's not fraud. That's the game. That's what.

that's what stocks are, man. So where is the fraud? And then we're gonna go through the fundamentals. So a few things. So let's go through their evidence.

Rapid adoption will lead to exponential growth. Fantastic! Where's the evidence of fake accounts? That's what? I Want to see? Block has a fundamental downside. Oh, I'll go through that myself in a moment. There you have criminals on their platform.

Dude, every bank has criminals. Criminals are everywhere. Everybody's a criminal to some extent. I Imagine everybody breaks the law at some point and in theory, if you've ever rolled a stop sign in your life, you too have broken the law.

And after all, what is a criminal? Well, a criminal is somebody who breaks the law. Therefore, are you not also a criminal? So then it's just. they're very in degrees of criminals. Uh, signs are hard to miss.

There is even a gang named after Cash App with members arrested for Fentanyl distribution. Okay, like what? Like whatever I paid them hitters through Cash app. Okay, like this is a fantastic PR for Cash app. This is interesting I Want to see the fraudulent account stuff and look.

I Want to be clear here: I don't own Square I Don't care if the stock goes to zero I Really don't care I'm just trying to look at this as a reasonable person. All right. Cash App has claimed to have 80 million annual transacting active users. A highly inflated number given evidence of massive user duplication.

Okay, uh. Cash App Page Seven of the SEC filing. They say the company has 80 million annual tracking actives. Okay, well you have to see what an active is, because if if you're just gonna say an active like an active could reasonably be an account, right? So that's from their annual report.

I'll go look at that in just a second. Uh uh. Let's see here. Cash Apps Users: Many users have dozens or even hundreds of accounts screen.

Well, I want to see these screenshots? Hold on. Let me go to that because they didn't convert to a PDF. So let's go here. Cash App Gang: Who cares? what do we have here? Cash App is a sponsor.

Big deal. Of course they're a sponsor. Okay, here are the user metrics: Growth Matt Actives: Well, you have to look at what the definition of an Activ is. and if the definition of an active is just active account instead of active people, then it's not necessarily wrong.

You know? Uh, okay. let's see here some fancy graphs. What is this? Okay, yes, so what a bunch of people like: I Don't know that there's necessarily something wrong with having a bunch of different Cash App accounts I mean there are a lot of Elon musks, but you can name yourself whatever you want. That doesn't necessarily mean they're fake I mean I can name myself you know Bj69 or or you know, 69 for BJ or whatever on the app if I wanted to I mean does it have to be your real name? I Don't know and uh, look at what is this credit card sent to Hindenburg whose real name? is not Donald Trump well uh I mean that's interesting I wonder.

But then again, I'm pretty sure you could put almost any name you want on your credit card like Danny Duncan showed me his credit card and on his credit card from American Express his Platinum Card his Platinum Card says Danny Duncan and I'm like that's pretty badass. They didn't stop you from putting that name on it and he's like, no, they didn't care what name I put on it. A part of that reason is because you could put you know whatever business name or in theory you want. So I wonder if that's just more of a broad business issue uh, or banking issue then then it is something that's specifically related to.

um, uh uh, you know, um, what's it called cheese Lord Square uh but anyway, what do we have over here? Here's a quote for details about a: Consumer Financial Protection Bureau petition. What is this slow walking? The disclosure to invest investors about the existence of the investigation I mean really like somebody is supposed to get like, like, urgently respond to a lawsuit from the Cfpb. Of course everybody's gonna take that easy the longer you're trying it out. Usually the like a you want to be detailed with your response and and B like you got to run a business like your top priority isn't responding to complaints.

That's just part of business though. Who's this? Proceeded to request a physical card uh, entering your name in the last four of her social. Okay, rather than requiring all nine digits over social cash app. Ran the incomplete investigation through a third party.

ID Check company to determine whether the information belonged to a unique individual. Why skip a basic legal requirement I Mean that's fair. You know if it should be the full, But how do we know that you have to see? Look at this. uh, identity verification.

See. To me, that's more of a question of ideology then like. Look at it this way. If you're square and you're like, all right, the government requires us to check the IDS of people before we issue something and you're like, well, the government allows us to use a third party service to do that.

Well, then it's an incumbent upon the third party service to do a good job. Let me give you an example: if you want to approve your an accredited investor and you prove that to Investready.com like if you want to invest in house hack and they give you a letter saying you're an accredited investor and you defrauded them or they didn't ask you for all the right information. It's not my problem anymore because I'm relying on Invest Ready as a third party to verify that you're an accredited investor. You know that's the problem with Invest Ready.

They're promising me that your credit right? So like businesses do that, they use third parties. I Don't know man. Okay, so they didn't require. Okay, now they require block.

Recently began requiring full socials. What looks to me like they're trying to fix the problem I Don't know man I I I Like to me, this, this seems crazy. I'm working to weed out the 40 to 50 percent of fraudulent activity accounts I'm working with daily. I mean Also, it's not uncommon for former employees to on the company they work for I Don't know Man, this is not as much of a smoky gun as I thought it would be.

Uh, you know Hindenburg I Don't know that they really had as much as they thought they had here. This is their two-year investigation. Let me go to the investor relations page: Investor Relations: Square Let's look at the fundamentals because maybe they have a point about the fundamentals of square being overvalued. Maybe they have a point there.

Uh, and I don't invest in Square and I don't short Square So I really don't care? Uh, but let's look at their annual uh report anyway and let's see if Square really is overvalued or you know, a fraud or whatever I mean to me this. I Don't know Man, it's it's not so crazy. Uh, but you know what is crazy and we're going to pull up this uh, this report here and I'll go through it with you. But what is crazy is that Square is actually recovering here in the pre-market Uh, people are buying the dip on square right now.

It's only down 15.8 percent. Uh, Coinbase on the other hand is down 17.18 in pre-market here. Uh, keep in mind if you want to use this awesome app. Uh, I am paid to tell you you can get 12 free Stocks by going to Metcaven.com Weeble Met Kevin.com Weeble You get 12 totally free stocks which could pay for your life insurance.

You can get in as little as five minutes. All right. So let's look at this: This is their last annual report. Let's just do the same thing we did earlier with Coinbase.

Let's go to their cash flow statement first. and and maybe it's overvalued, but it's not a crime to be overvalued, right? Okay, so they lost a lot of money. They lost 535 or 553 million dollars in 2022, while at the same time, they managed to pay out to their employees a billion dollars of stock based compensation. Good.

Lord Like I'm not opposed to stock based compensation at all. but like, at least make money, right? Somebody here says I ran a fake name for the longest time until they sent me a new card last year with my real name on it. That sounds like they're trying to get better. Sounds good to me, All right.

So what do we have here? Net Cash provided an operating activity. Oh, that's good. So we actually made some money from operations. Uh, but that could be deposits.

That could be an increase in deposit. So I'm not sure if that's actually going to be free cash. That is one of the issues with looking at bank style companies. So then you have payments to redeem convertibles proceeds from.

It looks like they paid off uh, some of their, uh, what's it called? some of their PPP uh, money. They paid some of that off paid off about 480 million dollars of PPP money. You know in 2020 I Think people got mad at people for taking PPP money I Remember that with uh, what was that uh Burger Joint there's something with an S there's some burger joint. Everybody got mad at it.

It's like nobody knew what was we were going to experience in 2020. uh, you know what kind of hell we were going to walk into. But anyway, net cash provided by financing activities. Okay, so we got some money from financing over here.

Okay, let's look at their actual numbers here. Uh, so we're losing money. Yeah. I mean so you can't really do a multiple evaluation on them because they are losing money, right? So the multiple is really infinite.

Uh, that that? That is fair. In Fairness. That's a very expensive company now. they are still growing transaction based Revenue unlike uh, coinbase, they're still growing Revs.

So let's calculate this really quick. So if I go 5701 divided by Four, Seven, Nine Three Shake Shack That was it. Thank you so much. That's 18.9 percent.

Uh, uh, 18.9 percent growth. That's actually still decent in subscription or transaction based Revenue Four Five Five Two divided by 2709. You're growing here by 68. That's pretty good as well Hardware up a little bit Bitcoin Revenue Obviously fall the fell.

Oh, that makes sense. Transaction: Revenue Costs are 2719 up 23 percent. At least that's better than Coinbase where Coinbase had negative revenue and their transaction costs were like doubling like their revenue was half and their transaction costs were doubling like Coinbase is the real loser here. This short report should be on Coinbase 861 divided by Four Eight Three.

Uh, that's a little. uh 78. That's also not that big of a separation from their revenue growth rate, so that's not terribly unusual. Their Opex did explode though.

all packs up and this is why their stock based comp is skyrocketing Opex Up 55 Yeah, I Don't know how they they're gonna go profitable again here. Uh, it's gonna be a hot minute before they can go profitable again with this sort of Opex growth. I Mean they if they had this Opex with the same growth as they used to have, uh, well, they actually are at about the same level of Revenue as they used to have. The problem really is their Opex growth.

So they have to grow faster than their Opex growth and they're growing Basic I Mean their total net revenue is basically negative. Uh, slightly negative if you look at just these two segments here, not considering Bitcoin 5701 5701 plus four, five, five, two divided by about what do we have here Two, eight, uh, six, Eight plus seven, Seven five. I mean they still grew by somewhere around 36 percent on their transaction and subscription revenue. and that is actually where they do have margin.

So they just need to grow faster than their Opex Yeah, Is it expensive? Are they likely to grow faster than their Opex Probably not. Would I invest in them right now? No. I Think there are probably a toxic bombshell because you don't even know how many losses are going to come out of uh, the loans from after pay. Uh, but but their their financials are actually not as bad as some of the other fintech players.

They're not good. I mean again. I don't want to touch them. Uh, but uh, let's see what do we have in debt over here.

So if we look at actual debt, customer payables will go away from that. Let's look at settlements. accrued expenses. That's 1.5 billion.

That's 2 billion right here. Current? That's two and a half bill. Safeguard that doesn't matter. Uh, defer tax liabilities I'll throw up.

Well, those are non-current so those don't matter as much. So we're gonna go with about two and a half billies right here in roughly bills to pay and they've got cash of four and a half Billy right here. Uh, that's not to include their their uh, short-term Investments That puts them at about 5.5 billion free cash not considering customer funds, receivables, loans available for sale. Those could become worth a whole lot less because they're probably dangerous.

This Good Will is insane. The fact that they put 12 billion dollars for their brand on their balance sheet? That's nutty, huh? Wait, What the hell? Look at their. Goodwill Holy crap. Now see.

that's where you can hit them with like, how do you? How do you say that? Look at their Goodwill They went from their brand being worth 500 million to their brand being worth 12 billion dollars. I Mean see that looks insane to me. That looks cookie Dukey But I mean they've got cash they could burn. They've got so much cash that they could burn these negative cash flow.

I Mean they I mean they actually have positive cash flow. They're not running out of cash. They're not going bankrupt. Yeah, their EPS might be negative for a while, but they have the capacity to keep burning cash because they're paying most of the people in the stock.

Yeah, that's dilutive to shareholders. Does it really look like they're a massive fraud? Uh, because they got some fake accounts and fake names? Not really. I Think this is somewhat of a weak report by Square, but that's my first take on it. I Mean maybe it's worth going even deeper into it, but my first take is not that great.