j2 Global Communications Inc.
(JCOM) recently announced that its flagship eFax line of products will now be available in 3,300 cities across 46 countries. This indicates a growth of around 62% in the last three years. The company delivers integrated communications services through its unique digital facsimile and voice messaging systems. These services are marketed under the brand names of eFax, eFax Corporate, eFax Developer, Fax.com, Send2Fax and eFax Broadcast.

Individuals and institutions are increasingly using digital faxing services to reduce costs and improve security. This helps the company’s corporate fax system to flourish even during the economic downturn. Digital facsimile system is widely used by financial services, insurance and real estate firms across the world. Large enterprises are now focused on reducing hardware footprints and operating expenses. j2 Global commands approximately 30% of the world digital faxing system, well ahead of its close rivals Captaris Inc. (CAPA), EasyLink Services (ESIC) and Premiere Global (PGI).

j2 Global currently has 70 top-tier customers that hold accounts with a contract size of 1,000+ DID (Direct Inward Dial) numbers. The company has deployed more than 1.275 million paid DID accounts globally and plans to launch 66 active solutions in the near term. It holds 57 US and foreign patents and another 49 are pending approval.

We believe management is executing efficiently despite a sluggish economic environment. The company’s business is extremely sensitive to overall macroeconomic factors. j2 Global has a vast majority of credit-sensitive customers from lending and mortgage industries and other financial institutions. Despite all these odds, second-quarter revenue rose by 3% year over year, customer churn rate fell 0.2% sequentially and for the first time in six quarters, Average Revenue per User grew marginally.

We believe the company’s strong financial position ($4.33 per share of net cash) and diversified products/services pipeline, along with the long-term growth prospects of outsourced value-added messaging services, may drive valuation levels higher in the near future.

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