Zacks_Analysts' Blog : j2 Global Beats, Outlook Strong - Analyst Blog

Yesterday, after market close ,j2 Global Communications Inc. (JCOM) reported excellent financial results for the fourth quarter of 2010.  GAAP net income was $26.9 million or 58 cents per share compared with $17.7 million or 39 cents per share in the year-ago quarter. Fourth-quarter adjusted EPS of 56 cents was significantly higher than the Zacks Consensus Estimate of 40 cents. As a result, in the after-market trade on NASDAQ, stock price of j2 Global was up by 20 cents (0.69%) to $29.

In the reported quarter, j2 Global added more than 500,000 paying DIDs (Dial In Demand), the largest quarterly growth since the fourth quarter of 2000. Total paying DID on December 31, 2010 was over 1.9 million.

Total revenue was a record-breaking over $71 million compared with $60.9 million in the year-ago quarter. The year-over-year increase was primarily due to an increase in the company's subscriber base. However, the reported revenue was exactly in line with the Zacks Consensus Estimate.Out of total revenue of $71 million,Subscriber Usage revenue was a record-high of $70.3 million, up 16.8% year over year.

Quarterly gross margin was 82.1% compared with 82.8% in the year-ago quarter. Operating expenses, in the reported quarter, were $32 million compared with $26.7 million in the prior-year quarter. The year-over-year increase in operating expenses was attributable to a hike in Sales and Marketing, Research and Development, and General and Administrative expenses. Operating margin was 37.1% compared with 39% in the fourth quarter of 2009.

j2 Global Communications generated $96.4 million cash from operation during fiscal 2010 compared with $101.8 million in fiscal 2009. Free cash flow (cash flow from operation less capital expenditure) in fiscal 2010 was $86.2 million compared with $93.1 million in fiscal 2009.

At the end of fiscal 2010, j2 Global Communications had approximately $87 million of cash & marketable securities on its balance sheet compared with $228.8 million at the end of fiscal 2009. The company had no outstanding debt.

Future Financial Outlook

j2 Global estimated that its fiscal 2011 revenue will be $320 million - $340 million. Its mid-point of $330 million is well above the current Zacks Consensus Estimate of $317 million. Fiscal 2011 non-GAAP EPS will be within the range of $2.21-$2.42. Excluding the stock-based compensation expenses, fiscal 2011 EPS is expected to be $2 - $2.20. Its mid-point of $2.10 is way ahead of the current Zacks Consensus Estimate of $1.95.

Our Recommendation

We believe j2 Global’s strong financial position and diversified products/services pipeline, in synergy with the long-term growth prospects for outsourced value-added messaging services, will support the stock price in future.

Nevertheless, j2 Global is extremely sensitive to overall macroeconomic factors. Depressive macroeconomic environment may negatively impact organic subscriber growth, churn rate, and service usage. The company competes with EasyLink Services International Corp. (ESIC), Open Text Corp. (OTEX), and Fuze Box Inc. We therefore maintain a long-term Neutral recommendation for j2 Global. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.