Kyndryl (KD, Financial), the IT infrastructure service provider spun off from IBM, saw its stock price drop by 14% after Gotham City Research released a report accusing the company of inflating key performance metrics through questionable accounting practices. Kyndryl, a major player in the IT infrastructure and consulting services industry, is accused of inflating its revenue by approximately $720 million, or about 9% of its total revenue for the fiscal year 2023, by improperly recognizing partner revenue.
The report also claims that Kyndryl misclassified $1.2 billion in restructuring costs as "non-recurring items," which led to an overstated profit margin by 340 basis points after excluding cloud migration costs. These allegations have created a divide among Wall Street analysts. While Morgan Stanley maintains an "overweight" rating on the stock, Bernstein has drastically cut its price target from $22 to $14.
In response, Kyndryl's CFO has denied all allegations made by Gotham City Research, labeling them as fundamentally flawed. To reassure investors and stabilize market confidence, the company has announced a $500 million stock buyback program.
