Wednesday, March 20, 2024

"Hindenburg Research Targets Equinix In New Short Report Claiming Data Center Firm Is Selling 'AI Pipe Dream' (UPDATED)" EQIX

From Benzinga, March 20:

Zinger Key Points

  • Hindenburg Research reveals a new short position in data center firm Equinix.
  • The short seller claims the company reclassified its capital expenditures reporting to make it appear more profitable.

Editor’s Note: The article has been updated to include Equinix’s response to the accusations made by Hindenburg Research.

Short seller Hindenburg research has a new company in its crosshairs.

What To Know: Hindenburg has targeted data center firm Equinix Inc
in a new short report published on Wednesday and announced a new short position against the company.

The short seller claims Equinix inflated its profitability metrics and pitched investors an “AI pipe dream,” while insiders backed out of the stock.

In a statement to Benzinga, Equinix indicated that they are reviewing the allegations made by Hindenburg and will withhold further comment until the evaluation is completed.

The company stated, “We remain confident that our distinctive advantages create significant long-term opportunity for Equinix and continue to see Equinix as highly relevant to customers as they pursue their digital transformation agendas.”

Equinix shares fell as much as 7% in early trading Wednesday before bouncing back. The stock was down approximately 2% at the time of publication.

The Details: Hindenburg alleged that Equinix has used accounting tricks to boost its adjusted funds from operations (AFFO). The short seller claims the company reclassified its capital expenditures reporting to make it appear more profitable than it is.

“Our investigation found that Equinix (i) bases its executive bonus compensation on the company's AFFO metric (ii) then manipulates its accounting for maintenance CapEx to overstate this AFFO figure, resulting in the illusion of vastly higher AFFO, higher executive bonus compensation and an inflated stock price,” the short seller said.

Hindenburg believes the alleged capital expenditures manipulation has boosted Equinix’s AFFO by about $3 billion cumulatively since 2015. Meanwhile, insiders have cash out more than $327 million in company stock since 2019, the short seller said....


After closing the regular session at $824.88, down $!9.70 (-2.33%) the stock settled up $112 (0.14%) at$ 826.00.

Equinix is a REIT so you have all sorts of REIT-specific accounting principles to wade through to find where the truth lies. 

Additionally, what follows is not legal advice, if you are running the REIT be sure to clear everything with the trust's tax counsel so as not to run afoul of the, again, REIT-specific IRS rules and regs on  disbursements. Just spitballin' here:

However, If EQIX is happy with their operations one nasty little trick is to either accelerate the next couple dividends or declare a special dividend resulting in a) Hindenburg being on the hook for a cash payment to whoever they borrowed the shares from and b) kick some of the appreciation out of Hindenberg's short position as buyers come in on the divi news.

Equinix has $2 billion in cash and equivalents so even after some shareholder remuneration ploys they could probably afford to hire Munger, Tolles & Olson or Cooley to bleed Hindenberg dry over the course of five or ten years.

Short selling is dangerous but short selling while making accusations of impropriety can be very costly.

Again, I don't know the fact of this case but I do know risks.

Just sayin'

We last had a mention of EQIX in March 14's "Google Cloud Is Losing Top Executives"