Summary
- Despite facing unprecedented economic headwinds in 2020, the company posted double-digit annualised earning power growth over the past two years and showed remarkable resilience through the worst of the COVID.
- I see the Hindenburg short report as largely a collection of glaring misrepresentations regarding J2’s management team and business fundamentals that detract from legitimate concerns regarding Chairman’s influence.
- Two years since the publication of my own original report and despite a slightly higher price, I believe J2 Global represents an even more attractive investment opportunity today than it did.
- Maintaining $200/share price target over 1-3 year time horizon.
- This note is a follow-up to the report I published on J2 in 2018. For those who do not have access to the original report, here is a quick summary of the original investment thesis published in 2018:
- J2’s track record at productively putting capital to work, places it in the same category as Danaher, Constellation Software, Jack Henry, HEICO, and other high-performance conglomerates.
- Despite this impressive track record of earning power growth, not only is the stock trading at a significant discount to other high-performance conglomerates, it is trading at discount to the sum of its parts, creating what I view as a very compelling investment opportunity.
- Based on my assumption of continued strong fundamental performance and eventual trading multiple re-rating my target price in 2018 was $200/share over 2-5 year time horizon (the stock at the time was $73.47/share, vs ~$80/share today).
This update is organized in three sections:
- Fundamental performance highlights over the past two years. Despite facing unprecedented economic headwinds in 2020, the company posted double-digit annualized earning power growth over the past two years and showed remarkable resilience through the worst of the COVID induced recession.
- Updated views on the investment opportunity. Two years since the publication of my original report and despite a slightly higher price, I believe J2 Global represents an even more attractive investment opportunity today than it did two years ago.
- Hindenburg promotional short report review. I see The Hindenburg short report is largely a collection of glaring misrepresentations regarding J2’s management team and business fundamentals that detract from legitimate concerns regarding Chairman’s influence on the business.
Section 1: Fundamental Performance since the original report was published
In 2018, J2 Global reported Revenue and EBITDA of $1,207MM and $490MM respectively. As of Q3 2020 the company has generated trailing twelve months EDITDA of $580MM with mid-point guidance for full year 2020 of $600MM representing ~11% annualized growth.
