Today's opinion is typical of what I often see. A company (here, Bloom Energy) designs and sells fuel-cell servers. It's a private company, but wants to (and eventually does) issue an IPO.
It could just present its finances in a straightforward manner. But no. Instead, it enters into various sale-leaseback arrangements where it (1) sells an energy server to a bank, (2) leases that same energy server back from the bank, and then (3) subleases that server to a customer, alongside a contract to service the server (which, technically, the bank owns).
There are a whole bunch of rules about whether these types of sale-leaseback arrangements are operating versus capital leases. The company desperately wants it to be classified as an operating lease, and designs the contracts accordingly. It thus values the leases (and resulting income) as operating leases, persuades its accountants to get on board, and goes public -- resulting in an infusion of half a billion dollars.
Later on, when the accountants inquire further into the underlying leases, the company regretfully has to reclassify the leases as capital leases, and on the day they make the announcement doing so, the now-public stock plummets 13.8%.
There's no way that normal people -- even smart normal people -- can figure out what's going on with the underlying machinations. And stuff like this happens all the time. I've gradually gotten a keen sense that I can't really rely at all on the purported income and profits claimed by large public companies. Could they be accurate? Of course they could. But they could also consist of a wide variety of this sort of stuff as well -- either in whole or in part. And there's absolutely no way for me to tell.
Now, because these things are so pervasive, it's not like I really have a ton of alternative investment options, at least in terms of equities.
But I'd be lying if I said that this uncertainty doesn't infect my investment calculus. It does. For sure.
Which is unfortunate. I'm profoundly unhappy with a system that both allows and rewards stuff like this.
