j2 Global’s Series of Acquisitions to Dent Cash Position

On Sep 8, 2014, we issued an updated research report on j2 Global Inc. (JCOM).

j2 Global has delivered positive earnings surprises in all four quarters last year, with an average beat of 8.87%. The company reported first-quarter 2014 financial results wherein both its top and bottom line significantly surpassed the Zacks Consensus Estimate.

j2 Global’s business largely depends on the capacity, affordability, reliability and security of its telecommunication networks. The company’s business is also dependent on a small number of telecommunication carriers in each geographic region. Thus, j2 Global’s operations will suffer to a great extent if it fails to obtain or retain telephone numbers or is prohibited from acquiring local numbers.

Further, j2 Global’s business is sensitive to overall macroeconomic factors, particularly weakness in credit markets. The company has a vast majority of credit-sensitive customers from lending and mortgage industries and other financial institutions. Although revenues from these sources have improved, we apprehend volatility in future estimates owing to global economic challenges. Furthermore, synergies from the digital media acquisitions may take longer to materialize than expected.

Despite strong revenue growth and lower churn, the company continues to face stiff competition from other players. Meanwhile, j2 Global carried out seven acquisitions over the last eight months. Hence, we believe that such a large number of buyouts may not only impact the company’s cash position but also give rise to integration risks. Further, it may also expand the company’s debt position which currently stood at $589.6 million of debt as against $245.7 million at the end of 2013.

j2 Global currently carries a Zacks Rank #4 (Sell).

Stocks That Warrant a Look

Other well-performing stocks in the Internet/Application software industry include Rally Software Development Corp. (RALY), TeleCommunication Systems Inc. (TSYS) and DTS Inc. (DTSI). All three stocks currently sport a Zacks Rank #1 (Strong Buy).