Capital Markets / Investor Relations in Two Minutes or Less
What Hindenburg Research’s Short Attack on EQIX Teaches Executives
Great short attacks have a wow factor. Great reports tell investors something they do not already know.
The $EQIX short attack represents the highest order of complexity.
Shorting a mega cap, highly liquid, passive investment company in a sector, Communications Infrastructure, benefitting from the secular bull market in data, driven by Artificial Intelligence.
Subsequent events and the company response seem to validate the short attack.
Always be careful betting against certain short sellers!
The Initial Hindenburg Short Report
The biggest issue was the report lacked the wow factor; what was the irrefutable premise that made $EQIX a short?
Most of the supporting evidence was already widely known since 2017.
Sell-Side and Buy-Side investors felt comfortable defending the name given $EQIXs stature and secular growth position around data and artificial intelligence
$EQIX Initial Response or Lack Thereof
A mega cap, highly liquid, growing company in a secular growth sector will get a pass for the most part.
The surprise for most revolved around a lack of an initial response from the company.
Subsequent $EQIX Response
On Monday, March 25, 2024, the company published an 8-K as a response to the initial short attack.
The 8-K identified significant legal requests and an Audit Committee review of the allegations.
The release is peculiar given the qualifying language and multiple anonymous quotes in the press release.
Less is more when announcing serious legal ramifications or investigations, and certainly you do not want to be making forward looking statements in such a press release.
The response seems rushed when compared to the response from Archer Daniels Midland regarding its own accounting scandal first reported in late January 2024.
At a minimum the 8-K response gives teeth to the initial short attack.
Key Learnings for Executives
1. Never Bet Against Hindenburg Research
Short sellers like Hindenburg are going deeper than many go on accounting analysis. In some instances, they may be getting help from agencies that most investors never give a second thought about.
2. Are You Prepared for an Investor Ambush?
Premium valuations get investors thinking about reversion to the mean in valuation. A stock price does not move up and to the right forever.
3. Do You Have the Right Investor Relations Team?
Does your company have the right IR team in place to identify a brewing ambush, and be prepared to defend against the ambush?
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