j2 Global Eyes Acquisitions for Growth, Rising Debts a Concern

On Mar 10, 2015, 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 6.52%. The company reported fourth-quarter 2014 financial results wherein both its top and bottom line significantly surpassed the Zacks Consensus Estimate.

j2 Global delivers integrated communications services through its unique digital faxing and voice messaging systems. Several enterprises are now increasingly utilizing digital faxing services to reduce costs while improving security. This helps j2 Global’s corporate fax system brave the negatives of economic downturns.

The digital facsimile system is widely used by financial service, insurance, and real estate companies throughout the world. Large enterprises are now focusing on reducing hardware footprints and operating expenses. In the fourth quarter of 2014, j2 Global achieved double-digit revenue growth at both the Cloud Service and Digital Media segments. Moreover, the company expects revenues to improve in fiscal 2015 as compared to 2014.

Moreover, j2 Global continues to expand its business through strategic acquisitions. Recently, the company purchased assets of EmailDirect, a CA-based provider of email marketing services. The acquisition will certainly drive the company’s email marketing business going ahead.

Recently, j2 Global bought Irish digital fax distributor FaxBox. The deal is likely to boost the company’s Internet fax business. Earlier, j2 Global acquired Excel Micro Inc., the Philadelphia-based distributor of cloud email security and archiving solutions. The deal helped the company gain control over 3,500 marketing partners of Excel Micro worldwide.

However, we believe that such large number of buyouts may not only impact the company’s cash position but also give rise to integration risks. Further, it may expand the company’s debt position which currently stands at $593.4 million as against $245.7 million at end-2013.

j2 Global currently carries a Zacks Rank #1 (Strong Buy).

Other favorably-ranked stocks in the Internet/Application software industry include ClickSoftware Technologies Ltd. CKSW, TeleCommunication Systems Inc. TSYS and DTS Inc. DTSI. All three stocks currently sport a Zacks Rank #1.