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Analyst Blog

j2 Global Inc. (JCOM - Analyst Report) reported weaker-than expected fourth-quarter 2011 financial results yesterday, after market close. However, the board of directors of j2 Global has raised its quarterly dividend by 2.4% from 20.5 cents per share to 21 cents per share and authorized a share buy back program to repurchase 5 million of common shares of j2 Globalthe company within February 20, 2013.

Quarterly GAAP net income came in at $29.8 million or 62 cents per share compared with $26.9 million or 58 cents per share in the year-ago quarter. However, fourth-quarter adjusted (excluding special items) EPS of 51 cents was far below the Zacks Consensus Estimate of 59 cents. Total revenue was $865.1 million, up 19.8% year over year, missing the Zacks Consensus Estimate of $86 million. Subscriber Usage revenue stood at $84.2 million, up 19.7% year over year.

Quarterly gross margin was 82.8% compared with 82.1% in the year-ago quarter. Operating expenses in the reported quarter were $31.9 million compared with $32 million in the prior-year quarter. Quarterly operating margin was 45.2% compared with 37.1% in the prior-year quarter. In 2011, j2 Global generated $150.8 million in cash from operations compared with $96.4 million in 2010. Free cash flow in 2011 was $143.9 million compared with $94.5 million in 2010.

At the end of 2011, j2 Global had approximately $221 million in cash & marketable securities on its balance sheet compared with $78.8 million at the end of 2010. Besides, the company had no outstanding debt on its balance sheet.

Future Financial Outlook

j2 Global maintained its fiscal 2012 financial outlook. Management expects total revenue in the range of $345 million - $365 million. Non-GAAP EPS is expected to remain same year over year. Non-GAAP effective tax rate is estimated in the range of 24% - 26%.

Our Recommendation

Despite stiff competition from EasyLink Services International Corp. and Open Text Corp. (OTEX - Snapshot Report), we believethe 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 Neutral recommendation on j2 Global. Currently, the company holds a short-term Zacks #2 Rank (Buy rating) on the stock.

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