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We reiterate our long-term Neutral recommendation on j2 Global Inc. (JCOM - Analyst Report) as we believe the stock is currently fairly valued. The company posted impressive fourth-quarter 2012 financial results with both the top and the bottom lines beating the Zacks Consensus Estimates.

Why Keeping at Neutral?

Record low churn, strong revenue and EBITDA growth along with a solid cash position andlong-term growth prospects of value-added outsourced messaging services, will drive j2 Global’s earnings higher in the long run.

We see the company’s recent diversification into the digital media segment as incrementally positive. Several industry researchers believe this segment will continue to grow in double digits in the near future.

Nevertheless, following last year’s 56.8% stock price growth, we are apprehensive of restricted market gain in the near term. Moreover,competition in the outsourced, value-added messaging and communications industry is fierce and continues to intensify.

Risk/Reward Virtually Balanced

j2 Global delivers integrated communications services through its unique digital faxing and voice messaging systems.In Nov 2012, j2 Global diversified its business into the digital media segment. The company acquired privately held digital media company Ziff Davis Inc. for about $167 million.

Ziff Davis controls a series of leading websites, mostly in the technology sector. These include PCMag.com, ComputerShopper, ExtremeTech, Toolbox.com and Geek.com.

Further in Feb 2013, j2 Global acquired IGN Entertainment, a leading video game and men’s lifestyle content developer, from News Corp. IGN operates several portals including IGN.com, UGO.com, 1UP.com and AskMen.com. This transaction is expected to be accretive to the company’s earnings in 2013. Management estimated that Ziff Devis and IGN will together contribute more than $120 million to the company’s annual revenues.

On the other side,j2 Global’s business is sensitive to overall macroeconomic factors, particularly weakness in credit markets. We believe estimates for future results may become volatile as the global economy continues to be challenged.

Other Stocks to Consider

j2 Global currently has a Zacks Rank #2 (Buy). Besides j2 Global, other stocks in the Internet/Application Software industry that are currently performing well include Open Text Corp. (OTEX - Snapshot Report), AVG Technologies N.V. (AVG - Snapshot Report) and Support.com Inc. (SPRT - Snapshot Report). While both Open Text and Support.com currently have a Zacks Rank #2 (Buy), AVG Technologies has a Zacks Rank #1 (Strong Buy).

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