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j2 Global Remains Neutral

Zacks Equity Research

j2 Global Inc.(JCOM), a leading provider of unified messaging capabilities recently declared solid third-quarter 2012 results where both its top and bottom lines  beat the Zacks Consensus Estimates.

During the reported quarter, j2 Global achieved few significant milestones such as record low churn rate of less than 2.3%, record high EBITDA growth of $50 million. Moreover, continuous improvement of Subscriber Usage revenue (This is an important parameter as credit-sensitive customers constitute a majority of j2 Global’s sales.) will further act as strong tailwind for the company going forward.

At present, j2 Global commands approximately 30% of the world digital faxing system. With the acquisition of Phone People Holding Corporation in the U.S. and Mediaburst Limited in Europe, j2 Global has become a worldwide leader in the virtual PBX market. Moreover, the recent purchase of Ziff Davis Inc. will further help the company to diversify its business into digital media field.

Backed by solid cash position, j2 Global continues to hike dividend and accelerate share repurchase plan, which will in turn continue to drive shareholders wealth in the long run.

On the flip side, sluggish economic growth coupled with stiff competition from other value-added messaging and communications service providers like Open Text Corp. (OTEX) and Websense, Inc. (WBSN) may act as headwinds for the company going forward. Moreover, the company’s business is dependent on a small number of telecommunication carriers in each geographic region. j2 Global’s business will suffer if it is unable to obtain or retain telephone numbers or is  prohibited from obtaining local numbers.

We, thus maintain our long-term Neutral recommendation on j2 Global Inc.  Currently, it has a Zacks #2 Rank, implying a short-term Buy rating on the stock.

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