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j2 Global (JCOM) Down 4.6% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for j2 Global (JCOM - Free Report) . Shares have lost about 4.6% in that time frame, underperforming 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 drivers.

j2 Global Q3 Results Benefit from Robust Growth in Digital Media Segment

j2 Global delivered third-quarter fiscal 2018 adjusted earnings of $1.53 per share, beating the Zacks Consensus Estimate by 3 cents. The figure grew 14.2% year over year.

Net sales in the quarter were up 7% year over year to $292.7 million. However, the figure lagged the Zacks Consensus Estimate of $295 million  

Quarter Details

Revenues from Cloud Services increased 2.9% from the year-ago quarter to $150.1 million. Digital Media revenues were $142.6 million, up 11.6% year over year. The company’s total subscription revenues increased 14% year over year driven by 94% growth in Digital Media revenues.

At the end of the quarter, the company had 3,204 cloud services customers. Average monthly revenue per customer increased 2.2% from the year-ago quarter to $15.61

Adjusted gross margin contracted 130 basis points (bps) on a year-over-year basis to 83.5%. Cloud Services adjusted gross margin contracted 180 bps while that of Digital Media increased 50 bps.

The company also acquired five different business units in the quarter.

Adjusted EBITDA margin stayed flat at 40.7%. Cloud Services adjusted EBITDA margin contracted 180 bps from the year-ago quarter. However, Digital Media adjusted EBITDA margin expanded 110 bps.

Adjusted operating margin contracted 70 bps to 37.3%. Cloud Services adjusted operating margin contracted 180 bps while that of Digital Media increased 50 bps.

Balance Sheet and Cash Flow

As of Sep 30, 2018, the company had approximately $386 million in cash and investments after deploying approximately $113 million during the quarter for acquisitions and regular quarterly dividend. Long-term debt during the period was $1 billion.

Cash flow from operations was $89.8 million in the third quarter compared with $67.3 million in the year-ago quarter.
 
Free cash flow increased 29.3% year over year to $73.5 million.

Guidance

j2 Global reaffirmed its earlier guidance. Revenues are expected to be between $1.20 billion and $1.25 billion for 2018. Additionally, the company projects adjusted EBITDA in a band of $480 and $505 million.

Adjusted earnings are now anticipated between $6.16 and $6.46 per share.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

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 top 40% 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 upward for the stock, and the magnitude of these revisions looks promising. 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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