Investing.com -- Shares of Kyndryl (NYSE: KD ) plunged 10% following a critical report by Gotham City Research, which accused the company of manipulating financial metrics and facing potential cost pressures that could significantly impact earnings.
The short seller’s report, released earlier today, alleges that Kyndryl has been artificially inflating its adjusted EBITDA and free cash flow figures, presenting a misleading picture of profitability and cash generation. According to Gotham City Research, the reality is that Kyndryl is incurring losses and burning through cash.
Gotham City Research also highlighted concerns about Kyndryl’s relationship with IBM (NYSE: IBM ), suggesting that the company will encounter higher incremental costs for IBM services in the coming years, which could result in earnings falling well below consensus estimates for 2025 and 2026. The report implies that these factors could drive Kyndryl’s share value down to between $4.71 and $11.50, or even to $0.00, indicating a potential downside of 67%-100% from current levels.
The report further criticizes Kyndryl’s accounting practices, noting irregularities and a lack of transparency in its disclosures, particularly concerning payments to IBM. It points out that Kyndryl ceased reporting its IBM costs since 2023, despite IBM being its largest supplier. The research also draws attention to discrepancies in Kyndryl’s capitalized costs, which are significantly higher than its peers, and questions the company’s receivables management, suggesting that without the benefit of receivables factoring, operating cash flows would be lower.
Additionally, Gotham City Research casts doubt on Kyndryl’s reported growth in "Total Signings," contrasting it with declining total revenues over the same period. The firm also notes that Kyndryl’s auditor identified a material weakness related to revenue recognition in its 2024 10K filing, further undermining confidence in the company’s financial reporting.
The report concludes by mentioning that insiders have accelerated share selling in recent quarters and that the company has been unresponsive to attempts to discuss these issues with management.
As the market digests the implications of the short seller’s allegations, investors are reacting by shedding Kyndryl shares, reflecting heightened concerns over the company’s financial health and future earnings potential.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.