Equinix: Major Accounting Manipulation, Core Business Decay | Hacker News Reader

Equinix: Major Accounting Manipulation, Core Business Decay

hindenburgresearch.com

134 pointshampelm38 comments

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.

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.

>> 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.

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.

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-b...

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

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…

“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.

I think you forgot the /s

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.

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.

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.

I have it on deep background that Hindenburg executives leave the toilet roll empty and dont return shopping carts

> and dont return shopping carts

Not at Aldi.

Do you not see the value in someone having a financial incentive to do muck racking when journalists have abdicated the role?

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.

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.

Hindenburg's track record of uncovering actual fraud is fairly impressive. Aren't the fraudsters here the actual leeches?

The question is .. did they lose any of these lawsuits? Any Elon can sue anyone for any reason.

This is the same logic the german government had when they went after the journalist who called out the Wirecard fraud. The free market doesn't work if companies are allowed to cheat the system!

They hunt for true fraud and they make their living off of being right often enough that their reports move the market.

If they weren't right often enough they would be ignored so they are incentivised to only publish when they think the odds are in their favor.

Ultimately they do good for the market, it sucks to be the people that invested before the reports land but chances are they protect more investors by outing fraud as soon as possible before it can get larger.

>If they weren't right often enough they would be ignored so they are incentivised to only publish when they think the odds are in their favor.

I disagree with this. This implies clear vision and we all know the very last thing a corporation will ever provide is clear vision. There is little difference a pump/dump and these people. Both are marketing ploys to allow them to make money.

If a stock tanks because a report reveals the company was cooking the books, that's good for the market and the economy as a whole.

That stock was sucking up investment that, rationally, should have instead been invested in other companies.

>If a stock tanks because a report reveals the company was cooking the books, that's good for the market and the economy as a whole.

How about when a stock tanks because a report was wrong, or a report was specifically crafted to imply all kinds of things, just to tank the stock price. Im sure that would be an honest mistake, that they just happen to make millions from. Whoopsie. smh.

I get the relationship between negative facts and a healthier stock market, but is anyone here naive enough to believe humans play things like massive mountains of money, honestly? rofl..

GL with that.

What's the opposite side of that though?

That corporate leadership are always paragons of transparency and announce all details accurately, so that business-as-usual markets can correctly price the stock?

Corporate press releases are explicitly crafted to benefit the stock price.

If the content of a negative third party report is accurate, then its intent doesn't matter.

If corporate leadership has a rebuttal, they're welcome to share!

If the content of a third party report is inaccurate, then the company is welcome to sue for libel, I assume?

>What's the opposite side of that though?

The opposite doesn't exist, generally, because humans are still involved.

The opposite is whatever pro-company positions are publicized, in order to increase the stock price.

Are you saying corporate PR isn't a thing? Or that quarterly earnings presentations aren't carefully written?

That’s how they fund their research, otherwise this would be private and closely guarded information available only to people with deep pockets. There is quite enough of such establishments in the market on the long side.

Hindenburg is a cleaning company, they wield a mop.

Sunlight, as the saying goes, is the best disinfectant.

They’ve been sued. Did they lose?

They seem more like exterminators than leeches to be honest.

They are some of the only ones I trust to actually discover and report fraud in the market. They have a direct stake on being correct and presenting irrefutable evidence of their claims, because if they are wrong they lose tons of money on their short bets. If they are correct they profit from their short bets and wrongdoing is exposed and punished. How is that contributing nothing to the world? Your whole comment is suspect. Who do you work for?

They only need the share price to drop significantly in short term. I assume they can close their position pretty quickly depending on how market moves. Look at the Adani Group, share price has recovered significantly since Hindenburg report.

> producing "reports" about companies, claiming fraud and manipulation

You say "reports" and "claiming" like there's any evidence that their claims aren't true.

Making extremely public claims like this and taking short positions is something that will easily get you successfully sued by the SEC and the companies you're reporting on...but only if your claims are false.

Can you point to a single example of any of their claims being proven false, or a successful lawsuit against them?

The only difference between an investigative journalist and a libelous liar is the truth - not in their methods or how they make their statements.

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.

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.

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

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

Pretty big nothing burger, nothing here is really surprising.

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