Endurance International Group: A Web of Deceit

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.