=DJ J2 Global Dn -3:Reaction Mixed To Subscriber Growth Drop
Part of the downturn in J2 Global's stock may be a reaction to headlines that the company's fourth-quarter earnings guidance was 31 cents, or 3 cents a share short of consensus estimates.
However, Rodman & Renshaw analyst Daniel Ernst said this could be attributed to the manner in which analyst estimates are calculated by Thomson First Call.
"I think there was a little confusion in the market on what the company's fourth-quarter guidance was," he said in a telephone interview, pointing out that one of the five analysts had seen the company earning 48 cents a share in the fourth quarter, well above other analysts' estimates of about 30 cents a share, which resulted in a consensus figure of 34 cents a share.
"Versus consensus, the guidance looked down, but versus the company's own previous guidance it was up," he said.
Advest Inc. analyst Stephen E. Levenson, who had estimated that the company would earn 48 cents in the fourth quarter, revised his estimate to 31 cents a share Tuesday and said in a telephone interview that the calculation had included "an aggressive assumption about conversion to the new pricing levels" as well as certain tax benefits.
Levenson said that while his prior estimate may have shifted the First Call number "by a couple of pennies," it was not the only reason for Wall Street's reaction.
Instead, Levenson said, investors are focusing on the company's subscriber growth and average usage per subscriber, which were both lower than the prior quarter.
Still, Levenson reiterated his buy rating of the stock and said that "relative to expected growth it's very reasonably priced at this level."
Indeed, while other Wall Street analysts noted the decline in subscriber growth and ARPU, many considered the downturns as temporary setbacks and said the company's third-quarter earnings results were positive overall.
"As usage increases throughout the remainder of this year, ARPU growth should follow," Jefferies analyst Rhett K. Madison said.
Pacific Growth Equities analyst Joe Noel said that while J2 Global's cash flow "continued to be very robust," higher revenue rates from licensing and advertising, as well as lower ARPU, may cause some concern from observers.
"In our opinion, the September quarter was solid, but due to the factors mentioned above, we view the quarter and the outlook as somewhat disappointing from the perspective of the average investor," he wrote.
Still, Noel reiterated his over weight rating, saying J2 Global's franchise "continues to be strong."
"We view this as a good buy opportunity," said Rodman & Renshaw's Ernst. "The pace which the stock has appreciated it has left some investors on the sidelines, but here they're presented with another opportunity."
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