We downgrade our recommendation on
j2 Global Inc.
(
JCOM">JCOM
) to Neutral based on its third quarter of 2011 financial results,
which missed theZacks Consensus Estimates. Nevertheless, the
Subscriber Usage revenue continues to beat market expectations.
This is an important parameter as credit-sensitive customers
constitute a majority ofj2 Global's sales. We believe the company's
strong financial position and diversified product pipeline, coupled
with the long-term growth prospects of value-added outsourced
messaging services, will drivej2 Global's earnings higher in the
near future.
Exploration of new opportunities for both digital facsimile and
voice services, through new acquisitions, facilitatedj2 Global to
solidify its market position. However, prolonged global
macro-economic concerns have raised serious concerns regarding the
future tech spending businesses, which may put pressure onj2
Global. The company'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.
Currently,j2 Global commands approximately 30% of the world
digital faxing system. The company competes with
EasyLink Services International Corp.
(
ESIC">ESIC
),
Open Text Corp.
(
OTEX">OTEX
), andFuze Box Inc. From an operational standpoint, the company
continues to focus on subscriber usage revenue. In the third
quarter of 2011,j2 Global Communications added more than 32,858 net
DID (Dial In Demand) with a quarterly churn rate of 2.5%.
Backed by strong free cash flow, management decided to
repurchase up to 10 million common shares, which would be
approximately 22% of the company's total shares outstanding, by the
end of 2012.j2 Global is more confident about its growth prospect
buoyed by increasing demand for cloud-based, value-added
communication, messaging and data backup services. Consequently,
management raised its fiscal 2011 financial outlook.
EASYLINK SVCS (
ESIC
): Free Stock Analysis Report
J2 GLOBAL INC (
JCOM
): Free Stock Analysis Report
OPEN TEXT CORP (
OTEX
): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research