Yesterday, after the closing bells, j2 Global Communications Inc. (JCOM) reported excellent financial results for the second quarter of 2011. In the reported quarter, the company achieved record high revenues, EPS and free cash flow. Operating margin also climbed to a near record high level.
j2 Global is more confident about its growth prospect buoyed by increasing demand for cloud based, value-added communication, messaging and data backup services. Consequently, management raised its fiscal 2011 financial outlook and initiated a dividend policy for the first time in the company’s history. In the after market trade in NASDAQ, stock price of j2 Global climbed $3.5 (13.47%) to $29.48.
Quarterly GAAP net income was $28.5 million or 61 cents per share compared with $18.7 million or 41 cents per share in the year-ago quarter. Second-quarter adjusted (excluding special items) EPS of 62 cents was significantly higher than the Zacks Consensus Estimate of 54 cents.
Total revenue was nearly $85.7 million, up 39.8% year over year, surpassing the Zacks Consensus Estimate of $84 million. This fabulous performance was primarily attributable to significant increase in the company’s subscriber base. Out of the total, Subscriber Usage revenue was a record-high of $85.3 million, up 40.9% year over year. In the second quarter of 2011, j2 Global added more than 31,000 net DID (Dial In Demand) with a quarterly churn rate of 2.4%.
Quarterly gross margin was 82.3% compared with 83.1% in the year-ago quarter. Operating expenses, in the reported quarter, were $32.6 million compared with $25 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. However, quarterly operating margin was 44.3% compared with 40.8% in the prior-year quarter.
j2 Global Communications generated $80.6 million cash from operations during the first half of 2011 compared with $47 million in the prior-year period. Free cash flow (cash flow from operation less capital expenditure) in the reported period came in at $78.1 million compared with $46.4 million in the year-ago period.
At the end of the second quarter of 2011, j2 Global Communications had approximately $171.7 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.
Outlook
j2 Global has upwardly revised its fiscal 2011 financial outlook. Management estimated that its fiscal 2011 revenue will be within the range of $335 million – $345 million. Fiscal 2011 non-GAAP EPS will be within the range of $2.46-$2.56.
Initiation of Dividend
The Board of Directors of j2 Global has approved a quarterly cash dividend of 20 cents per share. The first dividend will be paid on September 19, 2011 to all shareholders of record as of the close of business on September 2, 2011.
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), and Fuze Box Inc. We, therefore, maintain a long-term Neutral recommendation on j2 Global. Currently, the company holds a short-term Zacks #3 Rank (Hold) on the stock.
