j2 Global Misses EPS, Rev Soars

j2 Global Communications Inc. (JCOM - Analyst Report) reported excellent third quarter 2011 financial results yesterday, after market close. The company generated record high revenues in the reported quarter. In the after market trade in NASDAQ, the stock price of j2 Global climbed $0.33 (1.11%) to $30.

Quarterly GAAP net income came in at $25.5 million or 54 cents per share compared with $19.8 million or 43 cents per share in the year-ago quarter. However, third quarter adjusted (excluding special items) EPS of 59 cents missed the Zacks Consensus Estimate by a penny.

Total revenue was $86 million, up 37% year over year, and was in line with the Zacks Consensus Estimate. The fabulous performance was primarily attributable to significant increase in the company's subscriber base. Subscriber Usage revenue stood at a record-high $85.6 million, up 37.8% year over year. In the third quarter of 2011, j2 Global added more than 32,858 net DID (Dial In Demand) with a quarterly churn rate of 2.5%.

Quarterly gross margin was 82.6% compared with 82.8% in the year-ago quarter. Operating expenses in the reported quarter were $34.6 million compared with $24.8 million in the prior-year quarter. The year-over-year increase in operating expenses was attributable to higher sales and marketing, research and development, and general and administrative expenses. However, quarterly operating margin was 42.3% compared with 31.5% in the prior-year quarter.

At the end of third quarter of 2011, j2 Global Communications generated $109.2 million in cash from operations compared with $74.2 million in the prior-year period. Free cash flow generated in the reported period was $37.2 million compared with $26.7 million in the year-ago period.

At the end of the third quarter of 2011, j2 Global Communications had approximately $163.2 million in cash & marketable securities on its balance sheet compared with $78.8 million at the end of fiscal 2010. Besides, the company had no outstanding debt on its balance sheet.

Future Financial Outlook

j2 Global maintained its fiscal 2011 financial outlook. Management expects total revenue in the range of $335 million to $345 million. Non-GAAP EPS is projected in the range of $2.46-$2.56. The non-GAAP effective tax rate is estimated in the range of 25% to 27%.

Our Recommendation

Despite stiff competition from EasyLink Services International Corp. (ESIC - Snapshot Report) and Open Text Corp. (OTEX - Snapshot Report), we believe the company’s strong financial position and diversified product pipeline, as well as its long-term growth prospects of outsourced value-added messaging services and continuous subscriber growth will drive earnings higher in the near future.

We, thus, maintain our long-term Outperform recommendation on j2 Global. Currently, the company holds a short-term Zacks #1 Rank (Strong Buy rating) on the stock.

Read the full analyst report on JCOM

Read the full analyst report on OTEX

Read the full analyst report on ESIC