It has been about a month since the last earnings report for j2 Global (JCOM - Free Report) . Shares have lost about 5% 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 catalysts.
j2 Global Q1 Earnings Beat Estimates, Guidance Raised
j2 Global reported first-quarter 2019 adjusted earnings of $1.40 per share that beat the Zacks Consensus Estimate by 8 cents. The figure grew 14.8% year over year.
Revenues were up 1.8% year over year to $304.5 million that comfortably surpassed the consensus mark of $296 million. Average monthly revenue per customer increased 2.4% to $16.03. Cancel rate was 2.2%, flat year over year.
Based on the better-than-expected first-quarter results, j2 Global raised 2019 guidance.
Revenues from Cloud Services (50% of revenues) increased 1.8% from the year-ago quarter to $152.2 million.
Subscriber revenues (99.7% of Cloud Services revenues) climbed 1.7% to $151.8 million, driven by 2.9% growth in fixed subscriber revenues (81.9% of Subscriber revenues). Variable subscriber revenues (18.1% of Subscriber revenues) declined 3.5% year over year. Other licenses revenues (0.3% of Cloud Services revenues) skyrocketed 179.1% to $0.5 million in the reported quarter.
Digital Media revenues (50% of revenues) were $152.2 million, up 1.8% year over year. While DID-based revenues (63.8% of Digital Media revenues) declined 1.6%, non-DID revenues (36.2% of Digital Media revenues) increased 8.6% year over year.
At the end of the reported quarter, j2 Global had 3,148 Cloud Services customers compared with 3,185 at the end of the year-ago quarter.
Adjusted gross margin expanded 400 basis points (bps) on a year-over-year basis to 82%. Cloud Services adjusted gross margin contracted 30 bps, while that of Digital Media expanded 430 bps.
Adjusted sales & marketing, research & development, and general & administrative expenses increased 1.3%, 8.1% and 13.2%, respectively, on a year-over-year basis.
Adjusted EBITDA margin expanded 310 bps to 37.4%. Cloud Services adjusted EBITDA margin was flat year over year. However, Digital Media adjusted EBITDA margin expanded 290 bps.
Adjusted operating margin expanded 230 bps to 33.7%. Cloud Services adjusted operating margin contracted 10 bps, while that of Digital Media expanded 220 bps.
Balance Sheet and Cash Flow
As of Mar 31, 2019, j2 Global had approximately $226.6 million in cash and cash equivalents compared with $209.5 million as of Dec 31, 2018.
Long-term debt increased slightly on a sequential basis to $1.02 billion.
Cash flow from operations was $116.9 million compared with $103.9 million in the year-ago quarter.
Free cash flow increased 15% year over year to $104.3 million.
2019 Guidance Up
j2 Global now expects revenues between $1.33 billion and $1.37 billion (up from the previous guidance of $1.29-$1.33 billion) for 2019.
Additionally, the company projects adjusted EBITDA to be $540-$556 million (up from the previous guidance of $520-$540 million).
Adjusted earnings are now anticipated between $6.95 and $7.15 per share (up from the previous guidance of $6.65-$6.95 per share).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, j2 Global has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. 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 #1 (Strong Buy). We expect an above average return from the stock in the next few months.