J2’s main business, Left notes, is fax-to-email, or “eFax,” services. According to the company’s filings, eFax services make up over 40% of its revenues.
Left said that not only is eFax a dying business, but j2 Global’s proprietary technology that has dominated the market is rolling off patent protection. The company’s core eFax patent expires on April 1, 2017, according to Left.
“After spending a decade suing, then buying competitors who could have undercut pricing in a race to the bottom (which is ‘free’) j2 has hit a wall in the acquisition game at the same moment their patent protection is expiring,” said Left’s report.
Additionally, in order to distract investors from the dependence on eFax revenue, the company has listed these services under the banner of cloud computing in order to appear more palatable, according to Left.
“Putting aside digital media, which we will discuss below, everything bought for j2’s ‘cloud computing portfolio’ aside from fax-to-email is commoditized, unprofitable junk, with no new or unique technology and no leverage,” said the report. “The only thing cloudy about this is appearances.”
In the end, Left said the company is worth much less than its current valuation.
“It is Citron’s opinion that j2 Global has spent the past four years using the money generated by its legacy eFax business to prop the financials of a collection of unremarkable and/or useless assets that have all been acquired with terms undisclosed,” concluded the report.
After the release of the report, j2 Global’s stock nosedived. Since Thursday’s open, the stock has crashed about 20%, and is trading at $56.41 a share.
We have reached out to j2 Global for a response.