Why Is j2 Global (JCOM) Up 3.3% Since Last Earnings Report?

It has been about a month since the last earnings report for j2 Global (JCOM). Shares have added about 3.3% 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 drivers.

j2 Global’s Q4 Earnings and Revenues up Y/Y

j2 Global, Inc. delivered fourth-quarter 2018 adjusted earnings of $2.11 per share, beating the Zacks Consensus Estimate by 8 cents. The figure grew 17.9% year over year.

Net sales in the quarter were up 9.4% year over year to $346.1 million and beat the Zacks Consensus Estimate of $344 million.

Quarter Details

Revenues from Cloud Services increased marginally from the year-ago quarter to $148.1 million. Digital Media revenues were $198 million, up 16.8% year over year. The company’s total subscription revenues increased 1.4% year over year.

At the end of the quarter, the company had 3,165 cloud services customers. Average monthly revenue per customer increased 1.2% from the year-ago quarter to $15.49.

The company announced two acquisitions in the fourth quarter of 2018. The acquisitions include Ekahau and Castle Connolly.

Full-Year Details

For 2018, jCom recorded revenues of $1.2 billion compared with $1.11 billion in 2017. Earnings per share increased 12.6% year over year to $6.35.

Adjusted EBITDA was $489.5 million, up 5.7% year over year.

Full-year 2018 net cash provided by operations increased 51.8% year over year to $401.3 million and free cash flow increased from $264.8 million to $344.9 million.

Margins

Adjusted gross margin contracted 170 basis points (bps) on a year-over-year basis to 84%. Cloud Services adjusted gross margin contracted 260 bps while that of Digital Media declined to 36.2% from 48.4% in the year-ago quarter.

While adjusted sales and marketing expenses stayed flat in the reported quarter, research & development and general & administrative expenses increased 27.3% and 17.5%, respectively, year over year.

Adjusted EBITDA margin stayed flat at 44.6%. Cloud Services adjusted EBITDA margin contracted 240 bps from the year-ago quarter. However, Digital Media adjusted EBITDA margin expanded 180 bps.

Adjusted operating margin contracted 70 bps to 41.5%. Cloud Services adjusted operating margin contracted 250 bps while that of Digital Media increased 120 bps.

Balance Sheet and Cash Flow

As of Dec 31, 2018, the company had approximately $293.3 million in cash and investments after using $440 million during the quarter for acquisitions and regular quarterly dividend. Long-term debt stayed flat sequentially at $1.01 billion.

Cash flow from operations was $107.2 million in the reported quarter compared with $89.8 million in the third quarter.
 
Free cash flow increased 27.2% year over year to $95.8 million.

2019 Guidance

j2 Global expects revenues to be between $1.29 billion and $1.33 billion for 2019. Additionally, the company projects adjusted EBITDA in a band of $520 and $540 million.

Adjusted earnings are now anticipated between $6.65 and $6.95 per share.

The company announced its first open-market share buyback since 2012. Notably, 1.3 million shares are available under the buyback program.

Cloud services revenues are expected to grow approximately 5% with EBITDA margin staying flat year over year. Further, Digital Media revenue growth is expected to be 10% and EBITDA margin is anticipated to stay in the range of 33 and 34%.

Moreover, non-Cloud Fax businesses is expected to generate about $300 million in revenues in 2019.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

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