6 ms·

Equinix: Major Accounting Manipulation, Core Business Decay

134 points by hampelm 3y ago

chomp 3y ago
Pretty big nothing burger, nothing here is really surprising.
Animats 3y ago
The U.S. Attorney's office for the Northern District of California is getting interested.[1] [1] https://www.marketwatch.com/story/equinix-gets-subpoena-as-board-examines-short-seller-s-claims-26748153 https://www.marketwatch.com/story/equinix-gets-subpoena-as-b...
1letterunixname 3y ago
It went a long way from the early days of Jay Adelson & PAIX. Publicly-traded megacorps tend to devolve into chicanery without solid leadership and supportive board of directors. Instead, the bureaucrats, pyramid builders, and greedy folks move in and capsize the ship.
skirge 3y ago
it's the same company manipulating LPP's stock?
- baq 3y ago
  It’s a company which is in the business of profiting from being short stocks they do research and borderline forensic work on.
fauigerzigerk 3y ago
Putting myself in the shoes of a short seller, I would be concerned that this could be read as, yes management is inflating the measure that determines their bonuses, but this says nothing about the success of the business itself. While AFFO (a non-GAAP measure) may be inflated, it hasn't grown faster than the relevant GAAP measures. In fact, net income has almost doubled since 2021 while AFFO has only grown 23%. Revenue growth has been 23% as well. None of this is wildly inconsistent. The only thing that really stands out is the sudden drop in maintenance CapEx in 2015. They do highlight some other things about the data center market that may be relevant to the share price, but this seems far less damning than the AFFO issue.
- wjnc 3y ago
  I find it wonderful that the IASB lets these non-GAAP shenanigans continue to be. They could easily create a much larger distinction between GAAP and non-GAAP accounting, for instance by requiring a stronger separation in the presentation of different measures. Accountants can’t be very happy with yearly changing non-GAAP definitions that are “ment to” increase comparability but actually serve mostly to give boards a feeling that they have influence over presentation of how they think it is, instead of presentation of how it is.
  - ethbr1 3y ago
    >> When Equinix transitioned to become a REIT in 2015, it began using AFFO as a key metric in determining executive bonuses. That same year, Equinix reported a sudden 47% drop in maintenance CapEx, leading to an estimated 19% boost to reported AFFO. Also, is it common to use non-GAAP, accounting-dependant measures to compensate executives? At best, this seems like a strategic conflict of interest (bonuses vs good for the business) without an impenetrable firewall around the CFO's org. And even then, sets up an adversarial dynamic where everyone is against the CFO. I get any bonus metric will be juiced, but that's why metrics that are less game-able are used.
- dan-robertson 3y ago
  The notes about power/utilisation seemed pretty significant. I don’t really know how to weigh them agonist the accounting claims, or why those appeared first.
korginator 3y ago
Hindenburg research's entire business revolves around producing "reports" about companies, claiming fraud and manipulation, and then short-selling on a large scale. They've done this in the past, and they've been sued. In my wildly biased opinion, companies like Hindenburg are leeches that contribute nothing to the world. While there may be some elements of truth behind their reports, I'd take it with a large helping of salt, given the main objective of this company.
- solumunus 3y ago
  They are highly incentivised to reveal genuine fraud and after following their reports for a few years they are incredibly good at it. In my opinion they’re definitely providing a net benefit.
  - aristocratle 3y ago
    Textbook example is Nikola. I highly doubt any altruistic do-gooder would have unmasked that before the fraud sucked in even more investors and money.
- doubloon 3y ago
  I have it on deep background that Hindenburg executives leave the toilet roll empty and dont return shopping carts
  - ethbr1 3y ago
    > and dont return shopping carts Not at Aldi.
- bberenberg 3y ago
  Do you not see the value in someone having a financial incentive to do muck racking when journalists have abdicated the role?
- resolutebat 3y ago
  Hindenburg's track record of uncovering actual fraud is fairly impressive. Aren't the fraudsters here the actual leeches?
lifeisstillgood 3y ago
Recognising everything you can as CapEx is … fine … but even I am impressed by recognising a new lightbulb as capital investment. I mean … yeah, it is I guess…
- treffer 3y ago
  “Say you changed out fluorescents to LED light bulbs, that’s a capital improvement. You’re not replacing lightbulbs, you’re enhancing”. That's the basis for the claim that lightbulb changes are CapEx. This is an improvement though. A rack is usually 10-20kW @ equinix, that's well within reach for redoing larger areas of lighting. They also bill for overuse. Great, they improved the building to make more money. The other claimed scandal on that front is that they wouldn't change one light bulb at a time, but rather turn it into a larger project and then do it. This doesn't sound like a bad idea either. Avoid tiny maintenances, rather re I wouldn't be surprised if their battery claims have a similar underlying issue, freeing up space in a similar way that lights free up power. I don't see how this shouldn't classify as an improvement or proper management. And it's a good example of the quality of this report.
  - deleted 3y ago
    [deleted]
  - bastardoperator 3y ago
    I think you forgot the /s
- tyingq 3y ago
  If it was an en-masse replacement of fluorescent for LED, with some concrete cost savings that exceeded the initial cost over some period...it seems fine to me.
nickdothutton 3y ago
Without wolves like Hindenburg (who have a pretty good nose for fraud) the herd becomes swollen and damages its own habitat.
rand846633 3y ago
Can someone who knows more about the practical aspects of shorting stoks as an individual investor opine on how one would try to profit from Hindenburgs reports? (Let’s say if one can aford to loose 100k) I am aware of the risks of shorting and have no inclination to do so. I’d just like to hear the considerations of someone well versed in this kind of activities.
- c_o_n_v_e_x 3y ago
  You get a margin account from your broker and request permission for shorting... then open a position by selling x number of shares of the stock (assuming the stock is available to short). You make sure you have enough $$$ in your account so that in the event of the stock price going up, you aren't forced to sell at a a loss. Grossly oversimplifying things, rather than short, you can also buy put options on the stock which will increase in value if the stock goes down. Taking an options position is far more time sensitive than an outright short.

134 points by hampelm 3y ago

Pretty big nothing burger, nothing here is really surprising.

The U.S. Attorney's office for the Northern District of California is getting interested.[1] [1] https://www.marketwatch.com/story/equinix-gets-subpoena-as-board-examines-short-seller-s-claims-26748153 https://www.marketwatch.com/story/equinix-gets-subpoena-as-b...

1letterunixname 3y ago

It went a long way from the early days of Jay Adelson & PAIX. Publicly-traded megacorps tend to devolve into chicanery without solid leadership and supportive board of directors. Instead, the bureaucrats, pyramid builders, and greedy folks move in and capsize the ship.

skirge 3y ago

it's the same company manipulating LPP's stock?

baq 3y ago
It’s a company which is in the business of profiting from being short stocks they do research and borderline forensic work on.

fauigerzigerk 3y ago

Putting myself in the shoes of a short seller, I would be concerned that this could be read as, yes management is inflating the measure that determines their bonuses, but this says nothing about the success of the business itself. While AFFO (a non-GAAP measure) may be inflated, it hasn't grown faster than the relevant GAAP measures. In fact, net income has almost doubled since 2021 while AFFO has only grown 23%. Revenue growth has been 23% as well. None of this is wildly inconsistent. The only thing that really stands out is the sudden drop in maintenance CapEx in 2015. They do highlight some other things about the data center market that may be relevant to the share price, but this seems far less damning than the AFFO issue.

wjnc 3y ago
I find it wonderful that the IASB lets these non-GAAP shenanigans continue to be. They could easily create a much larger distinction between GAAP and non-GAAP accounting, for instance by requiring a stronger separation in the presentation of different measures. Accountants can’t be very happy with yearly changing non-GAAP definitions that are “ment to” increase comparability but actually serve mostly to give boards a feeling that they have influence over presentation of how they think it is, instead of presentation of how it is.
- ethbr1 3y ago
  >> When Equinix transitioned to become a REIT in 2015, it began using AFFO as a key metric in determining executive bonuses. That same year, Equinix reported a sudden 47% drop in maintenance CapEx, leading to an estimated 19% boost to reported AFFO. Also, is it common to use non-GAAP, accounting-dependant measures to compensate executives? At best, this seems like a strategic conflict of interest (bonuses vs good for the business) without an impenetrable firewall around the CFO's org. And even then, sets up an adversarial dynamic where everyone is against the CFO. I get any bonus metric will be juiced, but that's why metrics that are less game-able are used.
dan-robertson 3y ago
The notes about power/utilisation seemed pretty significant. I don’t really know how to weigh them agonist the accounting claims, or why those appeared first.

korginator 3y ago

Hindenburg research's entire business revolves around producing "reports" about companies, claiming fraud and manipulation, and then short-selling on a large scale. They've done this in the past, and they've been sued. In my wildly biased opinion, companies like Hindenburg are leeches that contribute nothing to the world. While there may be some elements of truth behind their reports, I'd take it with a large helping of salt, given the main objective of this company.

solumunus 3y ago
They are highly incentivised to reveal genuine fraud and after following their reports for a few years they are incredibly good at it. In my opinion they’re definitely providing a net benefit.
- aristocratle 3y ago
  Textbook example is Nikola. I highly doubt any altruistic do-gooder would have unmasked that before the fraud sucked in even more investors and money.
doubloon 3y ago
I have it on deep background that Hindenburg executives leave the toilet roll empty and dont return shopping carts
- ethbr1 3y ago
  > and dont return shopping carts Not at Aldi.
bberenberg 3y ago
Do you not see the value in someone having a financial incentive to do muck racking when journalists have abdicated the role?
resolutebat 3y ago
Hindenburg's track record of uncovering actual fraud is fairly impressive. Aren't the fraudsters here the actual leeches?

lifeisstillgood 3y ago

Recognising everything you can as CapEx is … fine … but even I am impressed by recognising a new lightbulb as capital investment. I mean … yeah, it is I guess…

treffer 3y ago
“Say you changed out fluorescents to LED light bulbs, that’s a capital improvement. You’re not replacing lightbulbs, you’re enhancing”. That's the basis for the claim that lightbulb changes are CapEx. This is an improvement though. A rack is usually 10-20kW @ equinix, that's well within reach for redoing larger areas of lighting. They also bill for overuse. Great, they improved the building to make more money. The other claimed scandal on that front is that they wouldn't change one light bulb at a time, but rather turn it into a larger project and then do it. This doesn't sound like a bad idea either. Avoid tiny maintenances, rather re I wouldn't be surprised if their battery claims have a similar underlying issue, freeing up space in a similar way that lights free up power. I don't see how this shouldn't classify as an improvement or proper management. And it's a good example of the quality of this report.
- deleted 3y ago
  [deleted]
- bastardoperator 3y ago
  I think you forgot the /s
tyingq 3y ago
If it was an en-masse replacement of fluorescent for LED, with some concrete cost savings that exceeded the initial cost over some period...it seems fine to me.

nickdothutton 3y ago

Without wolves like Hindenburg (who have a pretty good nose for fraud) the herd becomes swollen and damages its own habitat.

rand846633 3y ago

Can someone who knows more about the practical aspects of shorting stoks as an individual investor opine on how one would try to profit from Hindenburgs reports? (Let’s say if one can aford to loose 100k) I am aware of the risks of shorting and have no inclination to do so. I’d just like to hear the considerations of someone well versed in this kind of activities.

c_o_n_v_e_x 3y ago
You get a margin account from your broker and request permission for shorting... then open a position by selling x number of shares of the stock (assuming the stock is available to short). You make sure you have enough $$$ in your account so that in the event of the stock price going up, you aren't forced to sell at a a loss. Grossly oversimplifying things, rather than short, you can also buy put options on the stock which will increase in value if the stock goes down. Taking an options position is far more time sensitive than an outright short.