We reiterate our long-term Neutral recommendation on
j2 Global Inc.
) as we believe the stock is currently fairly valued. The company
posted impressive fourth-quarter 2012 financial results with both
the top and the bottom lines beating the Zacks Consensus
Why Keeping at Neutral?
Record low churn, strong revenue and EBITDA growth along with
a solid cash position andlong-term growth prospects of
value-added outsourced messaging services, will drive j2 Global's
earnings higher in the long run.
We see the company's recent diversification into the digital
media segment as incrementally positive. Several industry
researchers believe this segment will continue to grow in double
digits in the near future.
Nevertheless, following last year's 56.8% stock price growth,
we are apprehensive of restricted market gain in the near term.
Moreover,competition in the outsourced, value-added messaging and
communications industry is fierce and continues to intensify.
Risk/Reward Virtually Balanced
j2 Global delivers integrated communications services through
its unique digital faxing and voice messaging systems.In Nov
2012, j2 Global diversified its business into the digital media
segment. The company acquired privately held digital media
company Ziff Davis Inc. for about $167 million.
Ziff Davis controls a series of leading websites, mostly 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. This transaction is expected to
be accretive to the company's earnings in 2013. Management
estimated that Ziff Devis and IGN will together contribute more
than $120 million to the company's annual revenues.
On the other side,j2 Global's business is sensitive to overall
macroeconomic factors, particularly weakness in credit markets.
We believe estimates for future results may become volatile as
the global economy continues to be challenged.
Other Stocks to Consider
j2 Global currently has a Zacks Rank #2 (Buy). Besides j2
Global, other stocks in the Internet/Application Software
industry that are currently performing well include
Open Text Corp.
AVG Technologies N.V.
). While both Open Text and Support.com currently have a Zacks
Rank #2 (Buy), AVG Technologies has a Zacks Rank #1 (Strong
AVG TECHNOLOGS (AVG): Free Stock Analysis
J2 GLOBAL INC (JCOM): Free Stock Analysis
OPEN TEXT CORP (OTEX): Free Stock Analysis
SUPPORT.COM INC (SPRT): Free Stock Analysis
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