J2 Global (Nasdaq:JCOM) offers a burgeoning array of cloud-based services that let businesses and individuals communicate. These include eFax fax services, eVoice phone and voicemail products, KeepItSafe online backup storage and Onebox to help customers tie it all together. Impressively, its products are highly profitable, still growing and maintaining an edge over many larger, deep-pocketed rivals.

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Full-Year Recap
Revenues jumped 29.3% to $330.2 million. Subscriber revenue makes up nearly all of the top line and is broken into fixed fees, derived from annual or monthly subscription sales. This made up the bulk of revenue at more than 81%. The remaining 19% stemmed from fees that are based off usage. A small amount of revenue is also generated from patent and licensing sales, as well as advertising from the company's cloud-based websites and user interfaces.

Operating earnings jumped an even more impressive 30.9% to $136 million. This represented a very impressive operating margin of 41.2% of revenues. Lower income tax expense helped send net income up an even stronger 38.2% to $114.8 million, or $2.43 per diluted share. Free cash flow jumped about 44.7% to $157.5 million. The company's estimate of free cash flow was even higher, but included a tax benefit from employee stock options and related "share-based compensation." However, this does not stem from the company's business operations, so shouldn't count toward its operating free cash flow. (To know more about income statements, read Understanding The Income Statement.)

Outlook
For 2012, J2 Global projects sales between $345 million and $365 million. Management doesn't anticipate any big acquisitions but does plan to invest in improving some of the services it has recently acquired. As a result of this higher spending, it anticipates earnings will be about flat from 2011.

The Bottom Line
Based on the current stock price close to $30 per share, J2 Global trades at a very reasonable P/E of 12.6. The trailing free cash flow multiple is even more compelling at below 10. Profit growth will be modest for 2012, but the firm has grown the top and bottom lines at a low double-digit annual rate over the past five years. It is also impressively profitable. Net income margins were close to 35% for all of 2012.

J2 Global generates far more capital than it needs to run and grow its business. For the year, it generated $150.7 million in cash flow and spent only $6.8 million on capital expenditures. The current dividend yield is quite decent at 2.8%. Cash on the balance sheet grew to about $163 million, or about $3.44 per diluted share.

Competition is intense, with giant telecom and internet rivals including Verizon (NYSE:VZ), AT&T (NYSE:T), Google (Nasdaq:GOOG) and Yahoo (Nasdaq:YHOO) offering competing services. But so far, J2 Global is far from being crushed and has carved out a growing, profitable niche that should allow the company to continue expanding. There is even the potential for one of these deep-pocketed rivals to buy the company, which would likely be at a hefty premium to the existing share price. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

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