Tickers in this Article: JCOM, T, VZ, XRX, GOOG, YHOO
j2 Global Communications (Nasdaq:JCOM) makes its money from selling subscriptions to use its fax, voice and email capabilities under the eFax, eVoice and Electric Mail brand names. It reported first-quarter results on Thursday to demonstrate that growth trends are picking up, after what proved to be a temporary slow down during the latest recession. The firm has an appealing business model and share valuation, meaning the stock is worth a close look. (For more, see Equity Valuation In Good Times And Bad.) TUTORIAL: The Industry Handbook: The Telecommunications Industry

First-Quarter Recap
Non-GAAP Revenues jumped 39% to $83.7 million, as strong organic growth trends contributed positively to the top line. An accounting change reduced reported revenue by approximately $10 million, and on a continuing basis gross profit jumped an equally impressive 36%. Operating costs increased in sympathy, with sales as operating income also increased 39% to reach $38.2 million, or a very impressive 45.6% of total revenue. Subdued income tax expense growth pushed net income ahead 41.3% to $27.9 million, or 60 cents per diluted share. This represented a net margin of 33.3%, to demonstrate just how lucrative and scalable j2's business model is. (For more, see Getting To Know Business Models.)

For the full year, management currently projects sales between $320 million and $340 million, or year-over-year growth of approximately 25% to 33.3%. It expects earnings between $2.21 and $2.42, though this excludes share-based compensation expenses of about 21 cents per diluted share and a couple of other one-time items. Analysts currently expect full-year earnings of $2.33 per share.

The Bottom Line
At a forward P/E of less than 13, shares of j2 Global are worth a good, close look. Over the past five years, sales and earnings have grown between 10% and 12% on average each year, and look capable of similar growth levels for the next few years. The balance sheet is clean, with no long-term debt and free cash flow generation has been strong, or close to reported net income levels. The company counts traditional fax, phone and email players including Xerox (NYSE:XRX), AT&T (NYSE:T), Verizon (NYSE:VZ) and Yahoo (Nasdaq:YHOO) as competitors, but is also significantly different, as its services exist online. This makes competition more intense and barriers to entry less, as firms including Skype and Google (Nasdaq:GOOG) are online rivals, but the business model is highly scalable and as a result extremely profitable. (For more, see How To Use The P/E Ratio and PEG To Tell A Stock`s Future.)

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