j2 Global Upgraded to Outperform - Analyst Blog

We upgrade our recommendation for j2 Global Communications Inc. (JCOM) to Outperform. We believe the company's strong financial position and diversified product pipeline, in synergy with the long-term growth prospects for outsourced value-added messaging services, will drive valuation levels 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 j2 Global's sales.The company mainly competes with Open Text Corp. (OTEX), EasyLink Services Int. Corp. (ESIC) and Premiere Global Services Inc. (PGI).

Exploration of new opportunities for both digital fax and voice services, through continuous acquisitions, facilitated j2 Global to solidify its market position within the industry. The company achieved a huge reduction in the cancel rate in the last quarter. j2 Global has reduced its cancel rate to the pre-recession 2006 level of 2.6%.

Supported by strong free cash flow, management decided to repurchase up to 10 million common shares over the next two years, which would be approximately 22% of the company's total shares outstanding.

Last December, j2 Global Communications acquired Canada-based Protus IP Solutions Inc., a Software-as-a-service (SaaS) solutions provider for business enterprises. Protus has three flagship products. These are: MyFax (Internet fax), Campaigner (email marketing), and My1Voice (virtual phone service).

We believe the primary reason for j2 Global's decision is the huge synergy between the two company's flagship products. Target market for MyFax, Campaigner, and My1Voice are very much similar to that of j2 Global's own eFax, Electric Mail, and eVoice products.

During the last one year, Protus generated around $72 million in revenue of which MyFax contributed 81%. After this acquisition, j2 Global Communications has 1.9 million paid DIDs (Dial In Demand) installed globally. The company is now expecting its revenue for the fourth quarter of 2010 to be within the range of $69.5 million - $71.5 million, higher than its previous eatimate of $66 million.

 
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