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More Is More for j2 Global Inc.

March 21, 2014 | About:

Founded in 1995, j2 Global Inc. (JCOM) is, in terms of unified messaging capabilities, one of the leading providers. The company operates offering outsourced, value-added messaging as well as other communications such as digital faxing, voicemail, email and call handling services to individuals and businesses. Supported by various global telephony and Internet Protocol (IP) networks, it covers 49 countries and more than 4,200 cities. J2 Global Inc. and its affiliates provide internet services through their two divisions: Business Cloud Services and Digital Media.

Through the Business Cloud Services j2G Global offers diversified cloud-based services which include internet fax services such as eFax and MyFax, virtual phone systems like eVoice and Onebox, hosted email (Fusemail), email marketing solutions (Campaigner), online secure data backup (KeepItSafe), unified communications, and CRM solutions (through Campaigner CRM). This segment currently generates approximately 80% of j2 Global’s total revenue. The Digital Media segment was created by the company in November 2012 with the acquisition of Ziff Davis Inc., and IGN business. Through Digital Media, j2 Global offers news and reviews of technology products, displayed on its websites, which include PCMag.com, IGN.com, Askmen.com and Toolbox.com among others.

Indeed the company has a record revenue growth and has been delivering higher EBITDA and free cash flow. Analysts think these figures respond to the company’s effort towards diversification, specifically in the cloud-based services, and its success in the installation of a media business through the Digital Media segment. As far as the performance expectations for 2014 go, analysts think j2Global will deliver a strong financial outlook. Moreover, these bright results might allow the company to strengthen acquisitions, and keep up with the product diversification.

Fax Come-Back

Communication has always been quite expensive for companies, and the security requirements increase while technology improves. In order to reduce costs while improving security, every day more companies and enterprises are utilizing digital faxing services. j2 Global offers a unique digital faxing and voice messaging systems, and through its corporate fax system allows companies to reduce hardware footprints and operating expenses. As to enhance its service, j2 Global recently acquired two Australian Internet fax business service providers: OzeFax and Faxmate.

Despite macroeconomic volatility, the company, which at present commands approximately 30% of the world’s cloud-based digital faxing system, has successfully boosted sales from credit-sensitive clients. Revenue of approximately $350 million is expected to come from company’s fax business during 2014.

New Acquisitions

With a strong free-cash-flow and low leverage, the company was prompted to execute five buyouts in 2013. The firm acquired Email Security and Management Company (UK-based), Phone People Holding Corporation (US based) and Mediaburst Limited in Europe, and has thus become a worldwide leader in the virtual PBX market, with more than 2 million subscribers to cloud-based services. Moreover, the company recently acquired New Zealand-based Zintel Communications, expected to improve its cloud-voice service mainly thru the Asia-Pacific region. Another new addition is City Numbers, U.K.-based phone number provider, which offers inbound local, national and international toll free phone numbers in more than 80 countries.

In the digital segment, j2 Global has also made some shopping. The acquisition of digital media company, Ziff Davis Inc., plus the addition in February 2013 of IGN Entertainment, a leading video game and men’s lifestyle content developer, boosted the company’s digital media services. Surpassing 156 million visits and 476 million pages, IGN services have proven to be a major success, and have been launched in over 60 countries. Management expects that both services together will generate over $120 million in annual revenues for the company.

Bottom Line

Macroeconomic factors and weakness in credit markets are always threatening to strike companies in the software-communication industry. Furthermore, the digital media acquisitions are taking longer to materialize than cloud-based service investments. Competition is fierce, and continues to intensify, resulting on operating expenses increasing to $65.3 million, compared with $41.4 million year to year. Nevertheless, j2 Global posted quarterly gross margin of 83.9% compared with 81.7% in the year-ago quarter. Moreover, its recent acquisitions have proven to be highly profitable, and the company’s commitment to constant diversification and innovations reflects a strong management. Analysts are thinking this stock is worth taking a closer look at, given the fact that the company has a sustained revenue growth story despite the irregular macroeconomic levels and highly competitive environment.

Disclosure: Damian Illia holds no position in any stocks mentioned.

About the author:

Damian Illia
A fundamental analyst at Lonetreeanalytics.com constantly looking for value and income investments.

Visit Damian Illia's Website


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