After Gorging for Years, Endurance International Group Appetite for Hosting Acquisitions Slows

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After Gorging for Years, Endurance International Group Appetite for Hosting Acquisitions Slows

In its Q1 2016 earnings call on Tuesday, Endurance International Group (NYSE: EIGI) CEO and founder Hari Ravichandran said that the company, which is known for its rapid pace of acquisitions, will slow down its M&A activity and other investments as it focuses on the integration of Constant Contact, the email marketing platform it acquired for $1.1 billion last year and closed in February.

The acquisitions it does will be “less focused on the hosting space and more focused on product and technology space,” he said.

Endurance International Group reported a net income of $21.8 million or $0.16 a share for Q1 2016 on Tuesday, but fell short of analysts expectations, precipitating a significant sell-off of the Nasdaq-listed company’s shares. EIG’s share price had fallen over 46 percent from $20.01 a year ago to $10.72 at the close of trading on Tuesday.

In Wednesday trading, EIG shares have fallen below $9, despite a refrain of optimism from both the company and analysts. The Associated Press reports that an average estimate of EIG’s earnings per share (EPS) from five analysts surveyed by Zack’s Investment Research was $0.26, and Risers & Fallers showed that five major investment firms weighing in since the start of the year had all reiterated prior neutral or positive ratings. Most recently among them, Credit Suisse maintained its “outperform” rating, and set its target price at $18.

“This quarter demonstrated a collective focus as we balanced our efforts between the initial integration of Constant Contact and the other initiatives we are simultaneously driving,” EIG CEO and founder Hari Ravichandran said in an earnings call.

Ravichandran maintained that EIG’s cloud and WordPress products “are doing record numbers.”

“In 2016, we will be investing in marketing to drive our growth products and initiatives,” he said. “Our framework for the incremental spend considers some essential elements. First, as products are initially launched, subscriber acquisition costs are higher than they are at scale. Second, we’re entering into products with subscriber profiles that are different than our traditional hosting subscribers.”

The stock price had declined slightly through the first quarter prior to the earnings announcement. With a 34 percent increase in GAAP revenues over Q1 2015, and nearly 5.5 million total subscribers, EIG is undeniably still experiencing growth. Further, adjusting for one-time gains and costs, including a large tax benefit, EIG’s earnings were $0.24 per share. Earnings were roughly in line with analyst expectations.

EIG acquired SMB marketing platform Constant Contact in November in a deal WHIR blogger Tom Millitzer called “a turning point” for the the company, suggesting the parent should adopt Constant Contact as its top-level brand name to draw together its portfolio of dozens of hosting and web services brands.

Source: TheWHIR