Block (NYSE:SQ) stock dropped 3.8% in Wednesday premarket trading after Oppenheimer downgraded the fintech to Perform from Outperform as its Square seller could swing wildly in a downturn and Cash App revenue growth is likely to be slower than anticipated.

Oppenheimer analyst Dominick Gabriele had based his previous SQ Outperform rating on the company’s ability to protect its adjusted EBITDA. “We have learned investors really aren’t focused on adjusted EBITDA vs. gross profit given the high growth multiple,” he wrote in a note to clients.

Gabriele’s gross profit estimates for Block (SQ) are ~14% below 2023 consensus and ~11% below 2023 consensus. “This stems from a spending slowdown in Seller combined with less Cash App monthly active adds than consensus as well as less spend per active,” he said.

For the payment sector, he prefers more defensive names like Global Payments (GPN), Jack Henry (JKHY), Mastercard (MA), Paypal (PYPL), and Visa (V).

He does consider Block (SQ) a first mover for a risk-on market. “That said, we don’t believe we have seen the bottom in stock, and thus we could see the recent SQ rally evaporate,” Gabriele added. In the past month, SQ has surged 33%, but it’s still down 31% from a year ago.

The Perform rating aligns with the SA Quant rating of Hold and diverges from the average SA Author rating and average Wall Street rating of Buy.

SA contributor Nexus Research looks into Cash App’s advertising revenue potential