j2 Global Inc. (JCOM), a leading provider of cloud-based digital faxing and voice messaging systems, recently completed the 40th acquisition in the company’s history. The latest one is the privately held digital media company Ziff Davis Inc. for which j2 Global paid a total consideration of about $167 million. Ziff Davis controls a series of leading websites, particularly in the technology sector. These include PCMag.com, ComputerShopper, ExtremeTech, Toolbox.com and Geek.com.
j2 Global’s business is extremely 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. Although revenue from these sources improved, we believe estimates for future results may become volatile as the global economy continues to be challenged. In an effort to cope with this situation, j2 Global has decided to diversify into digital media field. Management has estimated that the acquisition of Ziff Davis will contribute around $60 million in 2013.
j2 Global has a strong cash position with no debt outstanding. After giving effect to this transaction, j2 Global was left with $300 million in cash and investments. Management has upwardly revised its revenue guidance after this acquisition. The company now estimates that its top line for 2012 will exceed the high end of its previous guidance range of $345 million and $365 million. Moreover, j2 Global reaffirms that its 2012 non-GAAP earnings per share will exceed that of 2011.
Despite stiff competition from Commtouch Software Ltd. (CTCH) and Open Text Corp. (OTEX), we believethe company’s strong financial position and diversified product pipeline, as well as its long-term growth prospects of outsourced value-added messaging services and continuous subscriber growth will drive earnings higher in the near future. We, thus, maintain our long-term Neutral recommendation on j2 Global. Currently, the company holds a short-term Zacks #3 Rank (Hold) on the stock.
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