J2 Global Surges 15% On Earnings Beat; RBC Upgrades To ‘Buy’

Shares in J2 Global (JCOM) surged 15% in Tuesday’s trading after the digital media company reported impressive second quarter earning results. However the stock subsequently pulled back 4% after-hours.

Specifically, Q2 Non-GAAP EPS of $1.71 beat Street expectations by $0.25, while GAAP EPS of $0.80 also topped consensus forecasts by $0.25. Revenue of $331M beat by $15.21M, rising 2.7% year-over-year as advertisers returned to spending through Q2 and Cloud subscriber cancel rates remained stable. Q2 EBITDA of $133M was above Street at 118M.

Meanwhile net cash provided by operating activities increased to $139.6M compared to $95.4M for Q2 2019, and Q2 2020 free cash flow increased 35.1% to $115.9M year-over-year. J2 ended the quarter with $711M in cash, cash equivalents, and investments after deploying $24M on its share repurchase program during the quarter.

Looking forward, JCOM also reinstated full-year guidance and now estimates that for fiscal year 2020 it will report revenue of $1.38B – $1.4B; Adjusted EBITDA of $556M- $570M; and Adjusted non-GAAP earnings per diluted share of $7.17 – $7.41. Revenue guide bracketed the Street while EBITDA guide was higher than Street estimates.

Following the report RBC Capital’s Shweta Khajuria upgraded her JCOM rating from hold to buy with a price target of $90 (30% upside potential). That’s with the stock currently trading down 26% year-to-date.

According to the analyst “JCOM has recently remained at depressed levels largely due to COVID-related uncertainties and downside pressure from intra- Q short report.” However she now believes these two overhangs have largely been cleared up, and is now constructive on the stock given its attractive valuation; stable-to-improving trends & fundamentals; and improved corporate governance and buybacks.

Indeed, JCOM recently received authorization to repurchase 10M shares through Aug ‘25. “We view J2’s announcement of increased buybacks and Scott Taylor as a Board member in addition to additional Board refresh over the next few months as key positives and the right steps, especially in light of the short report” Khajuria told investors on August 11. (See JCOM stock analysis on TipRanks).

Overall, JCOM scores a bullish Strong Buy Street consensus with 9 recent buy ratings vs just 1 hold rating. Meanwhile the average analyst price target stands at $95, indicating robust upside potential of 38%.

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