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Analyst Blog

We reiterate our long-term Neutral recommendation on j2 Global Inc. (JCOM - Analyst Report). The company reported mixed financial results for the first quarter of 2013.

Why Kept at Neutral?

We believe that low churn, record high revenues and EBITDA along with solid cash position and growth prospects of value-added outsourced messaging services, will drive j2 Global’s earnings higher in the near future. Exploration of new opportunities for both digital facsimile and voice services, through new acquisitions, will further act as tailwinds for j2 Global, going forward.

We believe that the company’s recent diversification into the digital media segment will be incrementally positive. According to several research analysts, this segment will continue to grow in double digits in the near future. Backed by strong business visibility, management raised the revenue outlook for 2013.

Nevertheless, 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 improved, we believe that the estimates for the future results may become volatile as the global economy continues to remain challenged. Average revenue per user, in the reported quarter, was $12.98 compared with $13.31 in the prior-year quarter.

Moreover, the stock price soared nearly 72% last year and is currently trading at the high-end of the 52-week price range, which may restrict above-market gain anytime soon. 

Other Stocks to Consider

j2 Global currently has a Zacks Rank #3 (Hold). Meanwhile, other stocks in the Internet/Application Software industry that are currently performing well include Constant Contact Inc. (CTCT - Snapshot Report), AVG Technologies N.V. (AVG - Snapshot Report) and Support.com Inc. (SPRT - Snapshot Report). All three stocks currently carry a Zacks Rank #1 (Strong Buy).

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