© Gotham City Research LLC

Endurance International Group: A Web of Deceit

April 28, 2015

 

GOTHAM CITY RESEARCH’S OPINIONS:

 

  • EIGI shares will go to $0.00 per share, as the company will struggle to service its debt. Normalized EBITDA margins do not cover interest expense.

  • Recent years’ reported EBITDA benefited from attracting Blinkx-like revenue (spam/malware, terrorism, etc.).

  • EIG profits at the expense of its customers (service outages, poor customer service, etc.).

 

SUMMARY OF FINDINGS:

 

  • 40%-100%+ of EIGI’s reported profits are suspect.

  • 2014 Average Revenue per Subscriber (ARPS) actually declined -13%. EIGI’s 10K claims ARPS grew +11%.

  • Organic growth overstated ~3x. We calculate organic growth to be ~5.6%, not 13.0%-15.0% as EIG claims.

  • Directi’s revenues per the Indian filings are 30%-67% lower than reported in EIGI’s 10K.

  • Directi revenue figures within the EIGI 10K do not add up.

  • EIGI paid 17% of its ’12-’14 EBITDA to a related party tied to the CEO. The related party seems to be Endurance.

  • No international revenue disclosures, despite promoting itself as an ‘international growth’ concern.

  • An undisclosed subsidiary falsely claimed to the US Government that the FBI “recommended” them.

  • EIGI’s BlueHost, JustHost, HostGator and HostMonster hosted terrorist websites as recently as few weeks ago.

  • EIGI domains hosted 1,000s of spam/malware-related sites per spam/malware watchdogs (the hosting world’s Blinkx).

  • EIGI spends ~1/6th on core infrastructure vs Godaddy.

  • Customer reviews are consistently poor.

  • A 15+ year industry executive states EIGI uses a churn model/definition that is “not industry common practice, while using industry terminology.”

  • EIGI is free cash flow negative. Godaddy is FCF positive.

  • The management team (including the CEO) recently sold ~30% of their stake in EIGI.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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