Why 21Vianet (VNET) Stock Is Up Today

NEW YORK (TheStreet) -- 21Vianet (VNET) was gaining 8.7% to $21.61 Monday after CEO Josh Chen sent a letter to shareholders regarding claims that the company is a Ponzi scheme.

The letter from the CEO addressed accusations that the Chinese data center service provider is a Ponzi scheme. Chen called the claim a "malicious and baseless attack," adding that it will "neither tarnish our record nor prohibit us from pursuing opportunities that we believe to be in the best interests of the shareholders."

'21Vianet is and has been adequately capitalized," Chen wrote. "It has also been alleged that we have, or likely will, breach our existing debt covenants. This is far from the truth."

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Last week Trinity Research published a report claiming that 21Vianet committed fraud via fabricated SEC statements. The report included photos of "ghost offices" and "ghost acquisitions" belonging to the company.

TheStreet Ratings team rates 21VIANET GROUP INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate 21VIANET GROUP INC (VNET) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and generally higher debt management risk."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 44.3%. Since the same quarter one year prior, revenues rose by 36.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • 39.96% is the gross profit margin for 21VIANET GROUP INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -9.48% is in-line with the industry average.
  • 21VIANET GROUP INC's earnings per share declined by 25.0% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, 21VIANET GROUP INC swung to a loss, reporting -$0.13 versus $0.15 in the prior year. This year, the market expects an improvement in earnings ($2.20 versus -$0.13).
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Internet Software & Services industry and the overall market, 21VIANET GROUP INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has significantly decreased by 45.7% when compared to the same quarter one year ago, falling from -$6.92 million to -$10.08 million.
  • You can view the full analysis from the report here: VNET Ratings Report

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