J2 Global (JCOM) Down 11.8% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for j2 Global (JCOM). Shares have lost about 11.8% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is j2 Global due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

j2 Global Q4 Earnings Beat Estimates, Revenues Up Y/Y

j2 Global reported fourth-quarter 2019 adjusted earnings of $2.38 per share, beating the Zacks Consensus Estimate by 0.4% and growing 12.8% year over year.

Revenues were up 17.2% year over year to $405.6 million, comfortably surpassing the consensus mark by 3.7%.

Average monthly revenue per customer decreased 9.9% to $13.96. Cancel rate was 2.4%, up from 2.1% reported in the year-ago quarter.

Top-Line Details

Revenues from Cloud Services (41.7% of revenues) increased 14.3% from the year-ago quarter to $169.3 million.

Subscriber revenues (99.9% of Cloud Services revenues) rose 14.3% year over year to $169.1 million, driven by 18% growth in fixed subscriber revenues (84.7% of Subscriber revenues). Variable subscriber revenues (15.3% of Subscriber revenues) declined 2.6% year over year to $25.9. Other licenses revenues (0.1% of Cloud Services revenues) decreased 4.4% to $0.2 million in the reported quarter.

Moreover, DID-based revenues edged down 0.3% to $96.7 million. Non-DID revenues surged 42.1% year over year to $72.6 million.

Digital Media revenues (58.3% of revenues) were $236.3 million, up 19.4% year over year.

At the end of the reported quarter, j2 Global had 4,036 Cloud Services customers compared with 3,165 at the end of the year-ago quarter.

Operating Details

Adjusted gross margin expanded 30 basis points (bps) on a year-over-year basis to 84.3%. Cloud Services’ adjusted gross margin shrank 190 bps to 32.8%. Digital Media adjusted gross margin expanded 220 bps to 51.5%.

Adjusted sales & marketing, general & administrative and research, development & engineering expenses flared up 20.3%, 22.4% and 23%, respectively, on a year-over-year basis.

Adjusted EBITDA margin shrank 110 bps to 43.5%. Cloud Services adjusted EBITDA margin contracted 200 bps on a year-over-year basis. However, Digital Media adjusted EBITDA margin expanded 120 bps.

Adjusted operating margin descended 100 bps to 40.3%. While Cloud Services adjusted operating margin contracted 200 bps on a year-over-year basis, Digital Media operating margin expanded 100 bps.

Balance Sheet and Cash Flow

As of Dec 31, 2019, j2 Global had approximately $575.6 million in cash and cash equivalents compared with $94.6 million as of Sep 30.

Long-term debt, as of Dec 31, was $1.45 billion, higher than $1.15 billion as of Sep 30.

Free cash flow was $82.1 million compared with $80.5 million in the prior quarter.

2020 Guidance

j2 Global expects revenues between $1.47 billion and $1.51 billion for 2020.

Additionally, the company continues to expect adjusted EBITDA of $575-$595 million.

Adjusted earnings are anticipated between $7.36 and $7.66 per share.

For the Cloud Services segment, revenue growth is expected to be roughly 5% year over year. Adjusted EBITDA margin is expected to be unchanged at approximately 50%.

For the Digital Media segment, revenue growth is expected to be more than 10% year over year. Adjusted EBITDA margin is expected to be approximately 34%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, j2 Global has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, j2 Global has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.