April 28, 2015
Gotham City Research LLC
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.