Image Source: Citron Research

What: Shares of cloud services provider j2 Global (NASDAQ:JCOM) tumbled on Thursday after Citron Research issued a report that skewered the company and its business model. The stock closed down more than 19%.

So what: Citron claims that j2 Global is "a company spending a billion on a roll-up strategy with negative organic growth. J2 has been buying money-losing commoditized cloud computing companies, combining them with a nonperforming digital media strategy to inflate its top line, as EBIDTA runs in place."

J2 Global operates an eFax business, which allows customers to send faxes online. According to Citron, the fax-to-email business generates 42% of the company's total revenue, and with patent protection ending in the near future, Citron believes that the barrier to entry in the business is gone.

Citron goes on to accuse j2 Global of controversial and aggressive billing practices in its fax-to-email business. When it comes to j2 Global's cloud services, Citron stated that "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."

Citron puts a $40 near-term target on the stock, with a $27 target within one year, and a single-digit target in the long term.

Now what: Citron's report on j2 Global is long and complex, and investors in the company will need to come to their own conclusions. Citron plans to release a second report focusing on j2 Global's accounting practices at a later date. Just because an argument sounds compelling doesn't mean it's correct, but investors certainly shouldn't ignore Citron's research.

Citron concluded, "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."

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