16 Telling Quotes About 21Vianet Group Inc From Trinity Research's Report

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21Vianet Group Inc VNET is one of the week's most talked-about stocks, after Trinity Research released a 121-page report claiming it is a fraudulent company.

Benzinga combed through the documents and compiled 16 telling quotes about 21Vianet (bold text is consistent with report formatting):

  • "We rate VNET a zero due to overwhelming evidence that the company is committing accounting and securities fraud. We expect VNET will end up delisted from the Nasdaq." (Page 6)
  • "Since listing in 2011, VNET has reported fraudulent financials and operating metrics. At least 31% of total revenue and 100% of EBITDA is fabricated (see Exhibit 1). An incremental one third of total revenue is illicitly derived and therefore worthless." (Page 6)
  • "Management has pumped the stock through promises of huge cloud revenue and a telecom license that will never materialize." (Page 7)
  • "A deep dive on iJoy, one of VNET's two VIEs. iJoy, with no fixed assets and nearly 100% net margin, is a shell company whose acquisition was orchestrated by VNET to roundtrip cash." (Page 15)
  • "If VNET can grow cabinets in its IDC network every quarter and keep utilization up, the business model must be working. That is the hope VNET has sold to investors and those two metrics are what ultimately drive VNET's stock price. The reality is VNET has never been able to make this simple model work because capacity expansion significantly outpaced demand." (Page 17)
  • "The industry has hugely overestimated demand, since demand was estimated at 7.28 million servers but only came in at 0.57 million, less than 8% of estimates...Here is the kicker: Utilization rates for super, mid-size, and small data centers are 1.8% (1 point 8%, not a typo), 21.5%, and 40%, respectively...so the benchmark for their purported industry-leading 73.9% utilization is between 21.5% and 40%." (Page 20)
  • "Our investigation concluded that VNET has overstated the number of cabinets in its IDC network by at least 2,460 (14.5% of reported) and overstated their utilization by at least 11.1 points." (Page 23)
  • "Nobody pumps their company better than VNET, which has successfully executed over RMB 5.7 billion ($915 million) in financings since 2011, the year of the IPO. That is greater than half the entire market cap of VNET today..." (Page 29)
  • "VNET has been about as acquisitive as any of China's largest Internet companies, having done 24 acquisitions since it prepared to go public in 2011...But unlike Alibaba, Tencent, Baidu or Qihoo 360, VNET's total acquisition consideration is a very large percentage of its market cap (almost 30%) and revenue (about 100% of 2014 revenue guidance)." (Page 31)
  • "It is very unusual for a company to acquire non-core businesses that outperform that dramatically as soon as they are tucked in. It is even more unusual, and also highly counterintuitive, for that to happen during critical periods of heightened execution risk...And yet that is exactly what happens without fail for VNET. It is practically a law, as the chronological chart of acquisitions overlaid with cabinet growth shows below." (Page 33)
  • "We tried to find iJoy's operations everywhere...All but one of the addresses led to ghost offices that could not have been used for real operations, and two of the ghost offices were occupied by different companies." (Page 43)
  • "iJoy not only has ghost offices, it also has a ghost board. SAIC filings show only one director who apparently runs board meetings with himself." (Page 44)
  • "What kind of substantial business, even if fraudulent, can be run by a handful of employees without real offices to work in, without meaningful capital to spend (remember how tiny the registered capital was for each MNS Entity) and with minimal supervision (hence, the one- person board meetings and Cheng Ran's notable absence in any of the operating records)?...The short answer is an illegal one." (Page 94)
  • "Every Ponzi scheme reaches a critical point at which it begins to collapse under its own weight. For VNET, we believe the massive back to back acquisitions of iPoo and Dermot will mark the peak of VNET's financing-driven bubble." (Page 108)
  • "The purpose of this report was to set forth our key findings from six months of investigative work so that investors, long or short, could consider them and act accordingly. While some of what we have stated is in fact opinion, we humbly suggest that the majority of what we presented is inarguable." (Page 116)
  • "What does this all mean? It means the business you thought VNET had is not really what it has. How different it is in actuality is up to interpretation." (Page 117)

Disclosure: At the time of this writing, the author had no position in the equities mentioned in this report.

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Posted In: NewsEvents21Vianet Group Inc
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