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j2 Global (JCOM) Up 23% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for j2 Global (JCOM - Free Report) . Shares have added about 23% 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 its most recent earnings report in order to get a better handle on the important catalysts.

J2 Global Beats on Q3 Earnings, Revenues Rise Y/Y

J2 Global reported third-quarter 2020 adjusted earnings of $2.02 per share that beat the Zacks Consensus Estimate by 14.1%. Moreover, the figure increased 18.8% year over year.

Revenues of $331 million beat the consensus mark by 5.7% and increased 3.7% year over year.

Average monthly revenue per customer declined 1.2% year over year to $13.98. Cancel rate was 2.1%, down 30 basis points (bps) year over year.

Top-Line Details

Cloud Services (47.7% of revenues) revenues decreased 0.5% year over year to $170.2 million. At the end of the reported quarter, J2 Global had 4,041 Cloud Services customers, almost unchanged year over year.

Subscriber revenues (100% of Cloud Services revenues) fell 0.4% year over year, primarily attributed to 11.8% decline in variable-subscriber revenues (15.1% of Subscriber revenues). However, fixed-subscriber revenues (84.9% of Subscriber revenues) increased 1.9% year over year to $140.8 million.

Moreover, DID-based revenues inched up 0.8% year over year to $98 million. However, non-DID revenues declined 2.3% year over year to $72.2 million.

Digital Media revenues (52.3% of revenues) increased 8% year over year to $186.7 million.

Operating Details

Adjusted gross margin expanded 230 bps on a year-over-year basis to 84.7%. Cloud Services’ adjusted gross margin shrank 160 bps to 37.2%. However, Digital Media adjusted gross margin expanded 390 bps to 47.4%.

In terms of expenses, adjusted research, development & engineering as percentage of revenues increased 60 bps year over year. However, adjusted sales & marketing, and general & administrative expenses declined 100 bps and 90 bps, respectively.

Adjusted EBITDA margin expanded 400 bps on a year-over-year basis to 43.2%. Cloud Services’ adjusted EBITDA margin increased 20 bps on a year-over-year basis. Moreover, Digital Media’s adjusted EBITDA margin increased 550 bps.

Adjusted operating margin expanded 460 bps year over year to 39.9%. While Cloud Services’ adjusted operating margin contracted 10 bps, Digital Media’s adjusted operating margin expanded 450 bps on a year-over-year basis.

Balance Sheet and Cash Flow

As of Sep 30, 2020, J2 Global had $567.9 million in cash and cash equivalents compared with $616.8 million as of Jun 30, 2020.

Long-term debt, as of Sep 30, 2020, was $1.08 billion, higher than $1.07 billion as of Jun 30, 2020.

Free cash flow was $93.7 million, up 19.9% year over year but down 19.2% sequentially.

Moreover, the company repurchased shares worth $150 million in the reported quarter.

Guidance

For 2020, J2 Global now expects revenues between $1.447 billion and $1.462 billion, up from previous guidance of $1.380-$1.400 billion.

Adjusted EBITDA is expected between $595 million and $605 million, up from prior guidance of $556-$570 million.

Moreover, adjusted non-GAAP earnings are expected between $7.85 and $8 per share, better than previous guidance of $7.17-$7.41 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 17.13% due to these changes.

VGM Scores

At this time, j2 Global has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise j2 Global has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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