Zacks_Analysts' Blog : Still Neutral on j2 Global - Analyst Blog

j2 Global Communications Inc. (JCOM) declared excellent financial results for the second quarter of 2011, which beat the Zacks Consensus Estimates significantly. We continue to believe that the company’s strong financial position and diversified product pipeline, coupled with the long-term growth prospects of outsourced value-added messaging services, will drive its earnings higher in the near future.

Subscriber Usage revenue continues to beat market expectations.  This is an important parameter as credit-sensitive customers constitute a majority of the company’s sales. Exploration of new opportunities for both digital facsimile and voice services, through new acquisitions, facilitated the company to solidify its market position. Meanwhile, the stock price soared more than 52% in the last year and we believe it is fairly valued at present. We, therefore, reiterate our long-term Neutral recommendation.

At present, j2 Global Communications commands approximately 30% of the world digital faxing system. The company competes with EasyLink Services International Corp. (ESIC), Open Text Corp. (OTEX), and Fuze Box Inc. From an operational standpoint, the company continues to focus on subscriber usage revenue. j2 Global Communications was able to reinvigorate sales from credit-sensitive clients, despite facing weak economic conditions on a global basis. Production efficiencies, cost containment, and business process improvements resulted in soaring operating margin, and record-high revenue, net income and free cash flow in the previous quarter.

Segment wise, j2 Global Communications continues to grow its most powerful eFax brand with creative content and designs. Furthermore, secondary digital faxing brands, including Fax.com, Rapid FAX, and Send2Fax also registered growth at a higher rate than eFax, its signature offering. With the acquisition of Phone People Holding Corporation in the U.S. and MediaburstLimited in Europe, j2 Global Communications has become a worldwide leader in the virtual PBX market. In the second quarter of 2011, j2 Global Communications added more than 31,000 net DID (Dial In Demand) with a quarterly churn rate of 2.4%.