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Tickers in this Article: JCOM, XRX, HPQ, LXK
j2 Global Communications (Nasdaq: JCOM) is a tiny but profitable provider of online fax, voice, email and other call-handling services. Recent growth trends have soured along with a downturn of the overall economy, but j2's valuation already discounts these more tepid near-term trends, which could pique the interest of a strategic acquirer.

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Recent Results
Third-quarter sales increased ever so slightly, rising 0.3% to $61.8 million on a modest boost in subscriber revenue, primarily from its eFax product offering that provides online fax services. j2 Global also offers online telephone and voice messaging services through its eVoice in the U.S., eReceptionist in Europe and Onebox brands. Its voice segments experienced the fastest growth during the quarter as international sales led the way. Management also detailed that organic growth trends were strong, as more customers signed up for its services than canceled as compared to its Q2. Average revenue per user grew 0.5% to $15.03. In terms of profitability, gross margins improved eight basis points to 81.8% of sales, while operating margins improved 220 basis points to 43.1% of sales. Management attributed this to its "operational excellence" and "diligence on cost efficiencies" that contributed to a 2.7% boost in net income to $19.3 million, or a healthy 31.2% of sales. Diluted earnings improved 2.3% to 43 cents per share as shares outstanding increased slightly.

j2 Global's free cash flow exceeded reported net income and came in at $26.1 million, growing an impressive 74% from last year's Q3. Analysts currently project full-year earnings of $1.85 per share, which puts the stock at a very reasonable 10.51 forward P/E. They expect revenue to improve a modest 2% to $246.4 million. j2 also sports nearly $5 in cash per share on the balance sheet and boasts no long-term debt. Returns on invested capital are also impressive.

Bottom Line
Investors stand to benefit from a number of angles: sales and profit could return to the double digits, the low earnings multiple could expand or a strategic buyer could emerge. Logical candidates include Xerox (NYSE: XRX), Hewlett Packard (NYSE: HPQ) or Lexmark (NYSE: LXK) to boost growth in their traditional printing and fax services, though j2 would not make a significant impact on their overall operations. (To learn more, see our article on Technology Sector Funds.)

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