We are upgrading our recommendation on j2 Global Communications Inc. (JCOM - Free Report) to Outperform based on its excellent financial results for the second quarter of 2011, which significantly beat the Zacks Consensus Estimates. We believethe company’s strong financial position and diversified product pipeline, coupled with the long-term growth prospects of outsourced value-added messaging services, will drive its earnings higher in the near future.
The Subscriber Usage revenue continues to beat market expectations. This is an important parameter as credit-sensitive customers constitute a majority of the company’s sales. Exploration of new opportunities for both digital facsimile and voice services, through new acquisitions, facilitated the company to solidify its market position. Ongoing macro-economic headwinds may actually help j2 Global since business enterprises are more inclined to use digital facsimile in order to reduce cost structure.
At present, j2 Global Communications commands approximately 30% of the world digital faxing system. The company competes with EasyLink Services International Corp. , Open Text Corp. (OTEX - Free Report) , and Fuze Box Inc. From an operational standpoint, the company continues to focus on subscriber usage revenue. j2 Global Communications was able to reinvigorate sales from credit-sensitive clients, despite facing weak economic conditions on a global basis. Production efficiencies, cost containment, and business process improvements resulted in soaring operating margin, and record-high revenue, net income and free cash flow in the previous quarter.
Segment wise, j2 Global Communications continues to grow its most powerful eFax brand with creative content and designs. With the acquisition of Phone People Holding Corporation in the U.S. and MediaburstLimited in Europe, j2 Global Communications has become a worldwide leader in the virtual PBX market.