Blockchain stocks slip as cryptocurrency winter dampens quarterly results

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Aug 5 (Reuters) – Shares in Jack Dorsey-led Block Inc ( SQ.N ), a digital payments company that has bet big on bitcoin, fell nearly 7 percent in premarket trading on Friday after the company reported a loss in quarterly results reduced interest in cryptocurrencies.

The San Francisco, California-based company saw nearly $3.5 billion wiped off its market value by 6:20 a.m. ET. ET. The stock is down more than 44% this year.

Block on Thursday reported a loss of 36 cents per share in the second quarter, compared with a profit of 40 cents last year, and said it has slowed hiring and will cut its 2022 investment target by $250 million. read more

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“The act of cutting costs suggests that SQ is preparing for potentially weaker growth,” JPMorgan analysts wrote in a note.

However, the brokerage maintained its “overweight” rating and $107 price target on the stock, citing the underlying earnings potential of its buy-now stock, which earned $150 million in gross profit in the quarter.

Investor enthusiasm for bitcoin and other digital currencies has waned this year as high inflation and a tightening of monetary policy by the US Federal Reserve led to a sell-off in risky assets.

That has hurt companies like Block, which rode the bitcoin frenzy to post strong earnings last year. read more

Block’s gross profit in bitcoins — or what the company earns from the spread to buy and sell the cryptocurrency — plummeted 24 percent to $41 million in the quarter from $55 million a year earlier.

“Shares had rallied nearly 35% over the eight sessions before going to print. The company would likely need to put together a near-flawless report to continue that rally,” according to analysts at BTIG.

Jefferies and RBC Capital Markets, however, raised their price targets, saying Block’s decision to cut costs would position it strongly to weather a tough economic environment.