j2 Global Reported Mixed 1Q11

Yesterday, after market close,j2 Global Communications Inc. (JCOM - Analyst Report) reported mixed financial results for the first quarter of 2011. GAAP net income was $30.9 million or 66 cents per share compared with $17.6 million or 39 cents per share in the year-ago quarter. First-quarter EPS of 66 cents was significantly higher than the Zacks Consensus Estimate of 47 cents.

Total revenue was nearly $73.4 million compared with $60.3 million in the year-ago quarter. The year-over-year increase was primarily ttributable to an increase in the company's subscriber base. However, the reported revenue was well below the Zacks Consensus Estimate of $82 cents.Out of total revenue of $73.4 million,Subscriber Usage revenue was a record-high of $72.9 million, up 22.4% year over year.

Quarterly gross margin was 78.5% compared with 83% in the year-ago quarter. Operating expenses, in the reported quarter, were $34.5 million compared with $25.6 million in the prior-year quarter. The year-over-year increase in operating expenses was attributable to a hike in Sales and Marketing, Research and Development, and General and Administrative expenses. Quarterly operating margin was 31.4% compared with 40.6% in the prior-year quarter.

j2 Global Communications generated $38.2 million cash from operations during the first quarter of 2011 compared with $34.7 million in the prior-year quarter. Free cash flow (cash flow from operation less capital expenditure) in the reported quarter came in at $36.1 million compared with $21.7 million in the year-ago quarter.

At the end of the first quarter of 2011, j2 Global Communications had approximately $126.7 million of cash & marketable securities on its balance sheet compared with $87 million at the end of fiscal 2010. Besides, the company had no outstanding debt.

Future Financial Outlook

j2 Global estimated that its fiscal 2011 revenue will be $320 million - $340 million. Fiscal 2011 non-GAAP EPS will be within the range of $2.21-$2.42.

Our Recommendation

We believe j2 Global’s strong financial position and diversified products/services pipeline, in synergy with the long-term growth prospects for outsourced value-added messaging services, will support the stock price in future. The company competes with EasyLink Services International Corp. (ESIC), Open Text Corp. (OTEX - Snapshot Report), and Fuze Box Inc. We, therefore, maintain a long-term Neutral recommendation for j2 Global. Currently, the company holds a short-term Zacks #3 Rank (Hold) on the stock.