What happened
Block (SQ 2.32%) stock tumbled 24.3% in January, according to data provided by S&P Global Market Intelligence.
The mobile payment company underperformed the major benchmarks, including the S&P 500, which was down about 5.9% in January, and the Nasdaq Composite, which was down 9% for the month.
Image source: Getty Images.
So what
January was the worst month for the S&P 500 since the start of the pandemic and the worst January for the Nasdaq since 2008, so the declines were pretty much across the board. Many of the same concerns that persisted in the fourth quarter -- inflation, COVID-19 variants -- which went on temporary pause in December due to a spike holiday shopping, emerged again.
But new concerns over the Federal Reserve's plan to raise interest rates and geopolitical strife between Russia and Ukraine also had negative impacts. In addition, there was likely a fair bit of profit-taking after two strong years for stocks.
These factors all pushed stocks lower, but Block was hit harder than most for a couple of reasons. One, the Fed's plan to raise rates, likely multiple times, hits growth stocks like Block harder than most. Two, the market did not react well to Block CEO Jack Dorsey's announcement that Block was building an open Bitcoin mining operation. Also, the stock dropped on Jan. 27 when reports surfaced that Apple may be launching a small business payment service, which would rival Block. The share price dropped 27% from $145 on Jan. 12 to a low of $105 on Jan. 27.
Now what
The Apple news is not official or confirmed, but even if Apple did roll out a payment service to rivals Block's card-reader technology, analysts say the threat is overblown.
As for the Bitcoin mining operation ambitions, there are concerns that this could be expensive, unprofitable, and divert the company's attention from its core businesses. But the stock price did surge on Feb. 1 on news that Block closed on its acquisition of buy now, pay later company Afterpay.
Block, formerly known as Square, continues to see massive growth with its Cash App, and an improving economy in 2022 should bode well for its merchant services ecosystem.
Block has lost more than half its value since late October when it was trading at over $265 per share. It is trading at around $114 per share as of Feb. 2. Its valuation has come way down, with a forward price-to-earnings ratio of 65, which is as low as it has been since the start of the pandemic and a price-to-sales ratio of around 3, which is also very low for this fast-growing company.
