Jack Dorsey’s Block (NYSE: SQ) could end up being the target of a “well-capitalized suitor” if its market cap keeps shrinking, in addition to a slower integration of “Buy Now, Pay Later” provider Afterpay (OTCPK: AFTPF) (OTCPK: AFTPY) into its system, Axios reported Tuesday.
“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,” a person familiar with the matter told Axios.
Block (SQ), formerly known as Square, alongside a slew of fintechs have been getting slammed by a broader risk-off environment over the past year. Its market cap has been sliced in half since April, standing at more than $ 30B on Tuesday, roughly the same amount used to purchase Afterpay (OTCPK: AFTPF) (OTCPK: AFTPY) in August. At the time of the acquisition, Block’s market cap was around $ 120B.
Its “ability to parse through Afterpay’s (OTCPK: AFTPF) (OTCPK: AFTPY) loans and move from one balance sheet to another is a much more arduous process than anticipated,” the person told Axios.
A rising interest rate environment is also impacting Block’s (SQ) “digestion” of Afterpay (OTCPK: AFTPF) (OTCPK: AFTPY), as the BNPL space is being faced with a margin squeeze amid higher funding costs, the person noted, as reported by Axios.
See why SA contributor Vladimir Dimitrov thinks Block’s (SQ) deal with Afterpay (OTCPK: AFTPF) (OTCPK: AFTPY) raises a number of red flags.
In mid-May, Block’s Sqaure integrates Afterpay’s BNPL to in-person points of sale.