Short Seller Jim Chanos Slams This Data Center Stock's Metrics: How The CEO Responded

Kynikos Associates founder and short seller Jim Chanos took to his unofficial (and unconfirmed) Twitter  account Thursday to take a shot at Equinix Inc EQIX CEO Charles Meyers on the heels of the company’s earnings report, which Chanos said has “made up metrics.”

Some Background: In late June, Chanos set out seeking to raise over $200 million for a fund that would short several U.S-listed real-estate investment trusts in the data center market, including Equinix.

The short seller said data center REITs are overvalued and warned their revenue and profitability growth may be on the decline.

Related: Short Seller Jim Chanos Betting Against This Booming Tech Sector: 'This Is Our Big Short'

Earnings By The Numbers: Equinix reported second-quarter earnings after the closing bell on Wednesday. Here is what the company reported.

Revenues

• $1.8 billion, a 5% increase over the previous quarter
• Includes a negative $20-million foreign currency impact when compared to prior guidance rates

Operating Income

• $318 million, a 19% increase over the previous quarter and an operating margin of 17%

Net Income And Net Income Per Share Attributable To Equinix

• $216 million, a 47% increase over the previous quarter, primarily due to strong operating performance and a favorable tax settlement
• $2.37 per share, a 46% increase over the previous quarter

Adjusted EBITDA

• $860 million, an 8% increase over the previous quarter and an adjusted EBITDA margin of 47%
• Includes a negative $10-million foreign currency impact when compared to prior guidance rates
• Includes $4 million of integration costs

AFFO And AFFO per Share

$691 million, a 6% increase over the previous quarter, primarily due to strong operating performance, partially offset by higher taxes due to increased profitability

$7.58 per share, a 6% increase over the previous quarter

Includes $4 million of integration costs

“On the broader returns, again, I would say, yes, our business is dramatically different on a return basis,” said CEO Charles Meyers on the earnings call, answering a question from an analyst who asked about Chanos’ short thesis.

“Look at our same-store sales and look at the 28% cash-on-cash returns of those, growing at 7%, which is what we demonstrated this quarter.”

Chanos feels those metrics are entirely made up, saying on Twitter, “When you make up the metrics, you can make up the numbers. LTM EBIT is $1.1B on a $25B capital base. LTM capex is $2.5B, with D&A of $1.7B. But sure…28%.”

(4) When you make up the metrics, you can make up the numbers. LTM EBIT is $1.1B on a $25B capital base. LTM capex is $2.5B, with D&A of $1.7B. But sure…28%. $EQIX pic.twitter.com/wJAIvIcH5m

— Diogenes (@WallStCynic) July 28, 2022

The Equinix CEO said Chanos’ comprehension of the data center market is poor, saying on the earnings call, “On the short thesis, I would just tell you that I think it represents an underdeveloped understanding of the data center market and the relative position of various players.”

EQIX Price Action: Shares of Equinix were trading 8.51% higher at $707.74 Thursday afternoon, according to data from Benzinga Pro. 

Photo via Shutterstock.