On Dec 10, 2013, we upgraded our recommendation on j2 Global Inc. (JCOM) to Neutral from Underperform owing to impressive third-quarter fiscal 2013 financial results.
Why the Upgrade?
Despite stiff competition and huge dependency on smaller number of telecommunication carriers, we are upgrading our recommendation on j2 Global based on strong third-quarter fiscal 2013 results, record-high quarterly revenues, EBITDA, free cash flow and record-low churn rate.
The better-than-expected performance was primarily attributed to the company’s diversification into cloud business, installation of a media business and initiation of the intellectual property program. j2 Global provided a strong financial outlook for the rest of 2013. We believe that the company’s healthy financial position and diversified product pipeline will sustain its future growth.
j2 Global currently has a Zacks Rank #3 (Hold).
j2 Global delivers integrated communications services through its unique digital faxing and voice messaging systems. Several enterprises are now increasingly utilizing digital faxing services to reduce costs while improving security. This helped j2 Global’s corporate fax system flourish during the economic downturn.
Segment wise, j2 Global continues to enhance its popular eFax brand with creative content and designs. Strong free cash flow and low leverage have induced the company to execute five buyouts in 2013. Recently, the company bought U.K.-based Email Security and Management company, EPA Cloud.
In Nov 2012, j2 Global diversified its business into the digital media segment. The company acquired privately held digital media company, Ziff Davis Inc., which controls a series of leading websites, particularly in the technology sector. These include PCMag.com, ComputerShopper, ExtremeTech, Toolbox.com and Geek.com.
Further, in Feb 2013, j2 Global acquired IGN Entertainment, a leading video game and men’s lifestyle content developer, from News Corp. IGN operates several portals including IGN.com, UGO.com, 1UP.com and AskMen.com. The IGN service has already registered huge profit during the quarter by surpassing 156 million visits and 476 million pages.
However, j2 Global faces intense competition from fax-to-email providers, broadcast fax companies, traditional fax machine/multi-function printer companies, unified messaging/communications providers, telephone companies, voicemail providers, companies offering PBX systems and outsourced PBX solutions and email providers.
j2 Global’s business is sensitive to overall macroeconomic factors, particularly weakness in credit markets. The company has a vast majority of credit-sensitive customers from lending and mortgage industries and other financial institutions. j2 Global’s business will further deteriorate if it is unable to obtain or retain telephone numbers or is prohibited from obtaining local numbers.
Other better-ranked stocks in the Internet/Application software industry that are currently performing well include Sonic Foundry, Inc. (SOFO), Constant Contact, Inc. (CTCT) and Cvent, Inc. (CVT). Sonic Foundry has a Zacks Rank #1 (Strong Buy) while Constant Contact and Cvent currently have a Zacks Rank #2 (Buy).