j2 global equity presentation
DESCRIPTION
Equity research report for J2 Global.TRANSCRIPT
JCOM : NASDAQhttp://www.j2global.com
j2 Global Communications • Cloud based, value-added communication, messaging and data
backup services to individuals and businesses around the world
• Online fax, virtual phone systems, hosted email, email marketing, online backup and bundled suites of these services
• Services make customers more efficient, more mobile, more cost-effective and more secure than traditional alternatives
• Revenue generated primarily from fixed subscription fees and usage fees.
• j2 Global's network spans more than 4,600 cities in 49 countries on six continents
Basic Information
• Market Cap: 1.37 BillionMarket Cap 1.37 Billion
Fiscal Year End December 31
Last Earnings November 2, 2011
Next Earnings February 15/12
Institutional Ownership 113.29%Shares outstanding: 46.28mShares held: 52.43m
Insider Ownership
# of Analysts 10
S&P Quality Ranking
Competitors• EasyLink Services International - www.easylink.com
– Market Cap: 154.95 million– Cloud-based Applications-as-a-Service
• On Demand Messaging– Electronic Fax, e-mail, document capture & management, workflow and notify services
• Supply Chain Messaging– Electronic data interchange and telex services
• Open Text Corporation - www.opentext.com– Market Cap: 3.49 billion– Enterprise Content Management Software
• Document, Web Content, Records, Email, Digital Asset & Business Process Management
• Collaboration• Archiving• Capture & Delivery• Content Reporting
Acquisitions
• 2010:– Reality Telecom Ltd - voice assets – Comodo Communications, Inc - fax assets– mBox Pty, Ltd - unified messaging and communications assets – FuseMail, LLC - email hosting and email marketing businesses– Alban Telecom Limited - enhanced voice services provider – Venali, Inc - enterprise Internet fax messaging solutions– keepITsafe Data Solutions Ltd - online backup services– Protus IP Solutions, Inc - Software-as-a-Service (SaaS) fax,
voice and email marketing
Acquisitions
• 2011– Data Haven Ltd• Business grade online data backup
– C3 Computers Ltd• Online Backup Business
“…reflects our broader vision to become a ‘one-stop-shop’ for cloud services for business, whether it be online fax, voice services, e-mail hosting, e-mail marketing or online backup.”
- Chief Executive Hemi Zucker
Target Acquisitions
• Customer Relationship Management• Invoicing
Product Segmentation
Geographic Segmentation
Management Discussion
• “Our success with the Protus® acquisition and migration enhances our confidence to pursue larger acquisitions which has facilitated our cash and investment position of nearly $200 million” - Hemi Zucker, CEO
• Continuing to see increased success with cross selling programs
Success Drivers• Fixed Revenue Growth
– Set up our base revenue– Margins on fixed revenues are the highest– Not impacted by seasonality
• Cross Selling– Initiative from Q1 2011– 11k new seats; 12.5% of net DIDs
• Saved at least $1.5m based on average cost not marginal; so likely even higher
– www.j2.com - 210k visits/2.4k signups since March• Integration of Acquisitions
– Protus’ my1voice finished migrating customers• 280,000 voice DIDs in eVoice brand
– Venali customers now on long-term contracts– Data Haven completed
2011 3rd Quarter Results
• Quarterly revenues of $86.0 million– 37% higher than 1 yr ago– Nine-month GAAP $245.1 million
• Quarterly fixed subscriber $70.4 million– 40% higher than 1 yr ago – Nine-month GAAP $197.1 million.
• Generated record nine-month free cash flow of $117.4 million
Q3 Conference Call
• Venali customers signed to long term contracts
• Broadcast Fax following planned decline– No longer pursuing Broadcast Fax business
• Voice & Corporate Fax had largest DID gains– 6 new large Corporate Contracts – over 50% of 33k
net adds– Voice contributed 33% - 11k DIDs
Q3 Conference Call
• 33,000 DID vs. 31,000 in Q2– Fixed Revenue growth
• Cancel Rate of 2.5%– Steady decline since Q3 2009– Customer Migration & Integration of New Services
Q3 to Q4
• Online Marketing– Compete with holiday retailers
• DID Cleanup– Departed employees
Risk Factors• Inability to successfully integrate and realize anticipated synergies from newly acquired businesses• Inability to continue to expand our business and operations internationally• New or unanticipated costs or tax liabilities, including those relating to federal and state income tax and
indirect taxes, such as sales, value added and telecom taxes• Inability to maintain required network of contracts on acceptable terms with financially stable telecom,
colocation and other critical vendors• Inability to manage certain risks inherent to our business, such as fraudulent activity, system failure or
a security breach• Competition from other similar providers with regard to price, service and functionality• Inability to obtain telephone numbers in sufficient quantities on acceptable terms and in desired
locations• Enactment of burdensome telecommunications, Internet, or other regulations, or being subjected to
existing regulations• Reduced use of fax services due to increased use of email, scanning or widespread adoption of digital
signatures• Inability to adapt to technological change and diversify our service offerings and related revenues at
acceptable levels of return-on-investment• Inadequate intellectual property protection or violations of third party intellectual property rights• Loss of services of executive officers and other key employees
J2comm
• Acquisitions are a large part of the company's growth strategy.• It bought seven companies in 2010, including the voice assets
of UK-based Realty Telecom LTD, the email assets of Quexion, and the fax assets of Comodo Communications, which does business as TrustFax. It also acquired the messaging and communications business of Australia-based mBox in a move to build its Asia/Pacific client base, particularly in Australia, New Zealand, and Singapore, where mBox is most active. It also purchased Miami-based Internet fax messaging specialist Venali for $17 million (following the dismissal of a patent dispute between j2 and Venali by the courts), online data backup specialist KeepItSafe, and UK-based Alban Telecom.
• Growth has been on a steady trajectory, averaging less than 10% per year. Sales grew 2% in 2009 and the company expects 2010 sales to increase 5%. j2 Global has recorded a net income every year since 2002.
http://www.mindtools.com/pages/article/newTMC_08.htm
High
Medium
Medium
Low Medium
Industry -Messaging Services Providers
• “Companies in this industry provide messaging, paging, and related services to businesses and consumers. Services such as e-mail and text messaging (using Short Message Service [SMS] technologies) are included. Messaging services are typically operated, managed, and maintained by telecommunications companies, Internet services providers (ISPs), and cell phone companies.”
http://subscriber.hoovers.com/H/industry360/overview.html?industryId=1586
Industry Structure
• “Outside callers can reach their party directly rather than by going through a central attendant, adding convenience and improving customer service.”
www.att.com/gen/general
Competitive Advantages
• Differentiated technologies• Bundled• Positioned well for “Cloud Boom”• Ease of use• Dividend (managements track record)
Competitive Advantages
j2 Global leases certain facilities and equipment under non-cancelable operating leases
Income StatementFQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007 FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 20079/30/2011 9/30/2010 9/30/2009 9/30/2008 9/30/2007 9/30/2011 9/30/2010 9/30/2009 9/30/2008 9/30/2007
Revenue 316.11 245.28 245.29 237.71 212.77 - Cost of Revenue 58.66 41.86 45.47 46.62 41.17 18.6% 17.1% 18.5% 19.6% 19.3%Gross Profit 257.45 203.43 199.82 191.08 171.60 81.4% 82.9% 81.5% 80.4% 80.7% - Operating Expenses 133.66 99.63 92.91 98.19 90.02 42.3% 40.6% 37.9% 41.3% 42.3%Operating Income 123.79 103.80 106.91 92.89 81.59 39.2% 42.3% 43.6% 39.1% 38.3% - Interest Expense 0.33 0.25 0.00 0.1% 0.0% 0.0% 0.1% 0.0% - Foreign Exchange Losses (Gains) 0.00 0.00 0.00 0.00 0.00 0.0% 0.0% 0.0% 0.0% 0.0% - Net Non-Operating Losses (Gains) (5.55) (1.34) 8.04 (6.11) (9.77) -1.8% -0.5% 3.3% -2.6% -4.6%Pretax Income 129.01 105.14 98.86 98.75 91.35 40.8% 42.9% 40.3% 41.5% 42.9% - Income Tax Expense 17.20 31.26 29.46 29.61 24.92 5.4% 12.7% 12.0% 12.5% 11.7%Income Before XO Items 111.81 73.88 69.40 69.14 66.44 35.4% 30.1% 28.3% 29.1% 31.2% - Extraordinary Loss Net of Tax 0.00 0.00 0.00 0.00 0.00 0.0% 0.0% 0.0% 0.0% 0.0% - Minority Interests 0.00 0.00 0.00 0.00 0.00 0.0% 0.0% 0.0% 0.0% 0.0%Net Income 111.81 73.88 69.40 69.14 66.44 35.4% 30.1% 28.3% 29.1% 31.2%
Balance SheetFQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007 FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 20079/30/2011 9/30/2010 9/30/2009 9/30/2008 9/30/2007 9/30/2011 9/30/2010 9/30/2009 9/30/2008 9/30/2007
Assets + Cash & Near Cash Items 134.19 212.70 188.35 140.72 132.10 21.1% 44.9% 47.9% 46.5% 37.1% + Short-Term Investments 29.01 16.20 31.17 0.03 97.67 4.6% 3.4% 7.9% 0.0% 27.5% + Accounts & Notes Receivable 17.72 13.17 13.44 15.00 16.05 2.8% 2.8% 3.4% 5.0% 4.5% + Inventories 0.00 0.00 0.00 0.00 0.00 0.0% 0.0% 0.0% 0.0% 0.0% + Other Current Assets 19.31 9.09 13.95 8.54 8.18 3.0% 1.9% 3.5% 2.8% 2.3%Total Current Assets 200.22 251.16 246.90 164.29 254.00 31.4% 53.0% 62.8% 54.3% 71.4% + LT Investments & LT Receivables 30.64 43.41 2.95 11.07 10.02 4.8% 9.2% 0.8% 3.7% 2.8% + Net Fixed Assets 14.34 11.41 15.81 20.30 21.29 2.3% 2.4% 4.0% 6.7% 6.0% + Other Long-Term Assets 391.71 168.03 127.40 106.75 70.35 61.5% 35.4% 32.4% 35.3% 19.8%Total Long-Term Assets 436.68 222.85 146.16 138.13 101.35 68.6% 47.0% 37.2% 45.7% 28.5%Total Assets 636.90 474.00 393.06 302.42 355.65
Liabilities and Equity + Accounts Payable 22.90 19.84 16.72 18.35 20.07 3.6% 4.2% 4.3% 6.1% 5.6% + Short-Term Borrowings 0.00 0.00 0.00 0.00 0.00 0.0% 0.0% 0.0% 0.0% 0.0% + Other Short-Term Liabilities 30.60 14.05 13.34 15.18 14.79 4.8% 3.0% 3.4% 5.0% 4.2%Total Current Liabilities 53.50 33.89 30.07 33.53 34.86 8.4% 7.1% 7.7% 11.1% 9.8% + Long-Term Borrowings 0.00 0.00 0.00 0.00 0.00 0.0% 0.0% 0.0% 0.0% 0.0% + Other Long-Term Liabilities 51.01 39.44 47.63 36.46 28.64 8.0% 8.3% 12.1% 12.1% 8.1%Total Long-Term Liabilities 51.01 39.44 47.63 36.46 28.64 8.0% 8.3% 12.1% 12.1% 8.1%Total Liabilities 104.51 73.33 77.70 69.98 63.50 16.4% 15.5% 19.8% 23.1% 17.9% + Minority Interest 0.00 0.00 0.00 0.00 0.00 0.0% 0.0% 0.0% 0.0% 0.0% + Share Capital & APIC 195.20 158.88 145.21 129.80 0.00 30.6% 33.5% 36.9% 42.9% 0.0% + Retained Earnings 337.19 241.80 170.15 102.64 292.15 52.9% 51.0% 43.3% 33.9% 82.1%Total Equity 532.40 400.68 315.36 232.44 292.15 83.6% 84.5% 80.2% 76.9% 82.1%Total Liabilities & Equity 636.90 474.00 393.06 302.42 355.66
Cash FlowsFQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007 FQ3 2011 FQ3 2010 FQ3 2009 FQ3 2008 FQ3 2007
Period End Date 9/30/2011 9/30/2010 9/30/2009 9/30/2008 9/30/2007 9/30/2011 9/30/2010 9/30/2009 9/30/2008 9/30/2007Cash From Operating Activities + Net Income 111.8 73.9 69.4 69.1 66.4 + Depreciation & Amortization 18.4 14.7 14.5 12.6 9.4 16.5% 19.9% 20.9% 18.3% 14.2% + Other Non-Cash Adjustments (5.6) 14.9 15.7 3.8 7.6 -5.0% 20.2% 22.6% 5.4% 11.5% + Changes in Non-Cash Capital 6.8 (5.5) 2.2 7.2 10.9 6.1% -7.4% 3.2% 10.4% 16.3%Cash From Operations 131.5 98.0 101.8 92.7 94.3 117.6% 132.6% 146.6% 134.1% 142.0%
Cash From Investing Activities + Disposal of Fixed Assets 0.0 0.0 1.4 0.0 0.0 0.0% 0.0% 2.0% 0.0% 0.0% + Capital Expenditures (5.6) (4.2) (2.0) (6.5) (8.0) -5.0% -5.6% -2.9% -9.5% -12.0% + Increase in Investments 0.0 0.0 (1.0) (48.0) 0.0% 0.0% -1.4% 0.0% -72.2% + Decrease in Investments 0.0 0.0 0.0 84.5 65.9 0.0% 0.0% 0.0% 122.2% 99.1% + Other Investing Activities (217.5) (67.7) (58.1) (13.4) (39.4) -194.5% -91.7% -83.7% -19.3% -59.3%Cash From Investing Activities (223.1) (71.9) (58.7) 48.4 (29.4) -199.5% -97.3% -84.6% 70.0% -44.3%
Cash from Financing Activities + Dividends Paid (9.5) 0.0 0.0 0.0 0.0 -8.5% 0.0% 0.0% 0.0% 0.0% + Change in Short-Term Borrowings 0.0 0.0 0.0 0.0 0.0 0.0% 0.0% 0.0% 0.0% 0.0% + Increase in Long-Term Borrowings 0.0 0.0 0.0 0.0 0.0 0.0% 0.0% 0.0% 0.0% 0.0% + Decrease in Long-term Borrowings 0.0 0.0 0.0 0.0 (0.3) 0.0% 0.0% 0.0% 0.0% -0.4% + Increase in Capital Stocks 21.0 6.2 7.2 4.5 10.8 18.8% 8.4% 10.4% 6.6% 16.3% + Decrease in Capital Stocks (1.9) (4.1) (135.5) (16.8) -1.7% -5.5% 0.0% -196.0% -25.3% + Other Financing Activities 3.4 (3.9) (2.1) (1.5) 0.0 3.1% -5.3% -3.0% -2.2% 0.0%Cash from Financing Activities 13.1 (1.8) 4.6 (132.5) (6.3) 11.7% -2.4% 6.6% -191.6% -9.4%Net Changes in Cash (78.5) 24.4 47.6 8.6 58.7 -70.2% 33.0% 68.6% 12.5% 88.3%
Enterprise Value
11/4/2011 9/11/2011 9/10/2010 9/9/2009 9/8/2008 9/7/2007Market cap 1364.70 1244.85 1065.27 1017.38 1024.53 1614.62 + Preferred Equity 0.00 0.00 0.00 0.00 0.00 0.00 + Minority Interest 0.00 0.00 0.00 0.00 0.00 0.00 + Total Debt 0.00 0.00 0.00 0.00 0.00 0.00 - Cash & Cash Equiv 163.19 163.19 228.90 219.52 140.75 229.77Enterprise Value 1201.50 1081.66 836.37 797.87 883.78 1384.86
Liquidity Ratios
Current Ratio
Quick Ratio
Activity Ratios Asset Turnover
A/R Turnover
Leverage Ratios
Debt/Equity
Debt/Assets
Financial Leverage
Profitability Ratios Gross Margin
Operating Margin
Profit Margin
ROA
ROE
ROC
J2 Global Inc.- Piotroski BreakdownQualification Score
1. Positive Net Income 12. Positive Cash Flow from Operations 13. Increase of Return of Assets 04. Cash Flow from Operations > Net Income 15. Decrease in Long-Term Debt to Assets 1*6. Increase in Current Ratio 07. Decrease in Shares Outstanding 08. Increase in Gross Margin 19. Increase in Asset Turnover 0Total Score 5/9
Price Multiples
Price/Earnings Ratio
Price/Book Ratio
Price/Sales Ratio
Price/ Operating Cash Flow
Analyst Coverage
Earning Surprise - Quarterly
Earning Surprise - Annually
Earnings - Matrix
Revenue - Matrix
Growth RatesRevenue Growth
EPS Growth
Asset Growth
Dividends
Dividend Yield
Management initiated a $0.20 dividend last quarter, and just announced an increase to $0.205 this quarter.
6-Month Comparative vs. Peers
2-Year Comparative vs. Peers
5-Year Comparative vs. Peers
6-month Comparative vs. Index
2-Year Comparative vs. Index
5-Year Comparative vs. Index
Technical Analysis
Overbought