Block stock is struggling, according to Evercore ISI. On Wednesday, the company downgraded the paying company’s stock to underperformer and lowered its price target to $55 per share from $120. This is nearly 21% lower than Tuesday’s close. “We are downgrading the SQ to Unsatisfactory from Unsatisfactory as Merchant and BNPL (Postpaid) businesses pose many risks due to increasing competition, tightening credit and macroeconomic growth. is expected to slow, putting negative pressure on our 2023 gross profit and EBITDA estimates.” analyst David Togut wrote in a note Wednesday. “While SQ continues to make significant strides in driving strong growth in Cash Apps through higher engagement and monetization, we see weakness in Merchants and BNPLs will put pressure on the company’s total earnings as there is a lower profit profile for Cash App,” he added. Competition intensifies Competition in the payments space is heating up and could be a headwind for Block. Since 2019, the company’s seller numbers and revenue growth have sometimes lagged behind its competitor, Clover’s. In addition, with expectations of a US recession, Evercore ISI now sees Block’s profit growth rate continue to decline from the second half of this year to 2024. The company’s post-pay division acquisition saw growth slow sharply in the first half of 2022 due to increased competition, falling consumer spending, and a more cautious credit disbursement from Block. “While cross-selling Afterpay in Seller and Cash App will be helpful, these difficulties will persist through 2023E,” Togut said. “2022E-2024E, we forecast Afterpay’s gross profit growth will average 13%, down from 83% and 72% in 2020 and 2021, respectively.” The Cash App is a different story, as Evercore ISI sees gross margins growing in the coming quarters using new products and cross-selling. However, that won’t offset losses from other parts of the company. “We expect Cash App gross profit (excluding BNPL) to grow by 25%, 23% and 21%, respectively,” Togut said. “That said, the Cash App’s 2021 EBITDA margin of 12% is a lot lower than the Merchant’s EBITDA margin of 35%, implying limited earnings contribution despite increased revenue. strong growth.” — Michael Bloom of CNBC contributed reporting.