It has been about a month since the last earnings report for j2 Global (JCOM). Shares have added about 6.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is j2 Global due for a pullback? 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 Q2 Earnings Beat Estimates, Revenues Up
j2 Global reported second-quarter 2019 adjusted earnings of $1.60 per share, beating the Zacks Consensus Estimate by 8 cents. The figure also grew 6.7% year over year.
Revenues were up 12% year over year to $322.4 million, comfortably surpassing the consensus mark of $318 million.
Average monthly revenue per customer decreased 10.7% to $14.01. Cancel rate was 2.5%, up from 2% reported in the year-ago quarter.
Revenues from Cloud Services (52.5% of revenues) increased 12.5% from the year-ago quarter to $169.1 million.
Subscriber revenues (99.9% of Cloud Services revenues) climbed 12.5% to $168.9 million, driven by 13.5% growth in fixed subscriber revenues (83.1% of Subscriber revenues). Variable subscriber revenues (16.9% of Subscriber revenues) increased 7.8% year over year. Other licenses revenues (0.1% of Cloud Services revenues) skyrocketed 31.2% to $0.2 million in the reported quarter.
Moreover, DID-based revenues edged down 1.1% to $97.4 million. Non-DID revenues surged 38.5% year over year.
Digital Media revenues (47.5% of revenues) were $153.3 million, up 11.4% year over year.
At the end of the reported quarter, j2 Global had 4,015 Cloud Services customers compared with 3,197 at the end of the year-ago quarter.
Adjusted gross margin contracted 220 basis points (bps) on a year-over-year basis to 81.5%. Cloud Services’ adjusted gross margin shrunk 50 bps to 41.3%. Digital Media contracted 170 bps to 40.2%.
Adjusted sales & marketing, research & development, and general & administrative expenses flared up 7.3%, 8% and 13.4%, respectively, on a year-over-year basis.
Adjusted EBITDA margin shrunk 60 bps to 38.8%. Cloud Services adjusted EBITDA margin expanded 10 bps on a year-over-year basis. However, Digital Media adjusted EBITDA margin advanced 60 bps.
Adjusted operating margin descended 100 bps to 35.1%. Cloud Services adjusted operating margin expanded 10 bps, while that of Digital Media contracted 100 bps.
Balance Sheet and Cash Flow
As of Jun 30, 2019, j2 Global had approximately $155.5 million in cash and cash equivalents compared with $226.6 million as of Mar 31, 2019.
As of Jun 30, 2019, long-term debt was $1.12 billion higher than $1.02 billion as of Mar 31, 2019.
Cash flow from operations was $95.4 million compared with $116.9 million in the previous quarter.
Free cash flow was $85.8 million compared with $104.3 million in the prior quarter.
2019 Guidance Reiterated
j2 Global still expects revenues between $1.33 billion and $1.37 billion for 2019.
Additionally, the company still expects adjusted EBITDA in the $540-$556 million range.
Adjusted earnings are anticipated between $6.95 per share and $7.15 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
At this time, j2 Global has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions 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.
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