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Equinix Exposed: Major Accounting Manipulation, Core Business Decay And Selling An AI Pipe Dream As Insiders Cashed Out Hundreds of Millions

Hindenburg EquinixSo begins the dramatic report issued today from Hindenburg Research.  Equinix is a major data center provider with over 25 datacenters in the world.  Over half the Fortune 500 is in their datacenters, as are many LowEnd providers.

They’re a short-selling firm (like SprucePoint, who we talked about earlier this week).  They go in, analyze the company, do some investigative work, and then issue a report they hope will drive the stock down.  Naturally, they buy shares and options just before the report is issued to make a profit.

You read Hindenburg’s full report here.

A lot of the report gets into accounting details which may be a bit complex for the lay reader.  But some things don’t require a degree in finance.

For example, let’s say you need to replace a UPS because it’s failing, that’s normal maintenance.  But if you can say you are putting in a new UPS because it “enables growth” or “fuels expansion” then that reclassification makes it look like the cost of maintaining your existing systems is lower, which improves margins.

It’s all the kind of funny accounting that happens when you get into non-GAAP metrics which now dominate financial reports.  If you read a typical company’s financials, there’s oceans of the stats and reports they want to use, and then the required GAAP reports are in the back.

Let’s look at some claimed shenanigans from the report:

In one example, a former director explained how Equinix would seek new serial numbers for refurbished equipment in order to recognize the old repaired item as new and book it as growth CapEx. “That’s really on the edge”, they explained.

Batteries represent one of the largest data center replacement costs. A former operations director explained how Equinix would classify routine battery replacements as growth CapEx by characterizing it as “replacing a battery system”.

Equinix’s accounting even went as far as classifying light bulb replacements as growth CapEx, per former employees. “Say you changed out fluorescents to LED light bulbs, that’s a capital improvement. You’re not replacing lightbulbs, you’re enhancing”.

One technique used by Equinix is to change the wording of projects to make them sound like capital improvements, according to a former director: “what happens is basically wording in such a way that it sounds like it’s a capital improvement. You can get very creative with language.”

It’s a lively read.

Of course, none of this says that Equinix is a bad datacenter provider, or that they can’t deliver what they promise.  Hindenburg’s claim is essentially is that the business is not as profitable as Equinix is claiming.


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