Stock of the Day: JCOM

JCOM has a lot of the things I look for in a stock. It's got a low PE, high growth, strong balance sheet. I just can't figure out what it does. Here's the Yahoo summary:
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j2 Global Communications, Inc. provides outsourced and value-added messaging and communications services worldwide. It offers faxing and voicemail solutions; document management solutions; hosted email, email perimeter protection, and email marketing services; call management; and conference calling services. The company also offers integrated solutions to replace or augment individual and corporate messaging and communications services. As of April 19, 2005, j2 Global Communications delivered its services through its global telephony/Internet protocol network that covered approximately 1,500 cities in 22 countries across 5 continents. The company serves individuals, small to medium-sized businesses, enterprises, and government organizations. j2 Global Communications was co-founded by Jaye Muller and Jack Riley in 1995. The company is headquartered in Hollywood, California.

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Can anybody translate this for me? What kind of businesses would buy from it and what would JCOM do for them?

[Ed Miller]

http://www.sec.gov/Archives/edgar/data/1084048/000119312505061443/d10k.htm

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Messaging and Communications



eFax Plus® offers the subscriber a unique local telephone number (in 1,500 + cities worldwide), or toll-free U.S. telephone number, which enables the subscriber to receive inbound fax messages in their email Inbox and to send documents to any fax number in the world directly from the subscriber’s desktop. This service is also localized in many international currencies and languages, including Spanish, German, French and Dutch.



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jConnect Premier® offers the subscriber a unique local telephone number (in 1,500 + cities worldwide), or toll-free U.S. telephone number, which enables the subscriber to receive inbound fax and voicemail messages in their email Inbox and to send documents to any fax number in the world directly from the subscriber’s desktop. Subscribers also have the ability to access all messages, including email, from the Web or any touch-tone telephone. Web-initiated, sixteen party Conference Calling is also available.



eFax Corporate® offers capabilities similar to those offered by eFax Plus and jConnect Premier, but with added features and tools geared towards enterprises and their users. For example, we provide our Corporate customers a Web browser-based account administration interface which enables them to provision telephone numbers to employees, as needed, without the need to contact our account representatives. eFax Corporate also offers the option of enhanced security features, which are particularly attractive to firms in the financial, healthcare and legal industries.



eFax BroadcastTM and jBlast® offer a cost-effective solution for high-volume faxing. These services enable users to send important documents simultaneously to hundreds or thousands of recipients anywhere in the world. Customers do not need special computer equipment, expensive fax boards or multiple phone lines. These services also enable customers to accurately monitor the status of their faxes and update their database of “Do Not Fax” names and undeliverable fax numbers.



eFax Free® and jConnect Free® are j2 Global’s limited use, advertising-supported “introductory offerings”. Each subscriber is given a unique randomly assigned telephone number which enables the user to receive a limited number of faxes (and voicemails with jConnect Free) into his or her personal email Inbox. The subscriber does not have the capability of sending faxes from his or her desktop (as with our “paid” subscription services) or access to other j2 Global services (e.g., conference calling). In addition, the customer agrees to receive and open email advertising, which we distribute on a consistent basis.



Onebox® is a full-featured suite of unified communications services, including email, voicemail, fax and “find me/follow me”.



Electric Mail® is an outsourced hosted email service we offer to businesses. From its Electric WebMail, E-mmunityTM virus scanning and SpamSMARTTM SPAM filtering to professional consulting and needs analysis, Electric Mail develops and delivers customized email and perimeter protection solutions that can be hosted offsite or installed at a customer site, with seamless integration into a customer’s existing email systems.



M4 InternetTM offers a permission-based opt-in outsourced email marketing solution. This service enables the user to create and execute email campaigns from their desktop. Additionally the service enables the user to deliver, track, report and analyze customer reactions to build valuable customer relationships.

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During the past three years, we have derived substantially all of our revenues from the sale of our eFax Plus® and jConnect Premier® paid services. These services are deployed through a DID. As a result, we believe that paying DIDs and the associated revenues are an important metric for understanding our business. It has been and continues to be our objective to increase the number of paying DIDs through a variety of distribution channels, marketing arrangements and enhanced brand awareness as well as to increase the average revenue per DID.

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Thanks for the info. It seems to me that these services don't have a very wide "moat" (i.e. competitors could provide similar options fairly easily, driving down the margins). Thus JCOM will likely see its 40% margins cut in the future.

Any other opinions?

[Ed Miller]

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Thanks for the info. It seems to me that these services don't have a very wide "moat" (i.e. competitors could provide similar options fairly easily, driving down the margins). Thus JCOM will likely see its 40% margins cut in the future.

Any other opinions?

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I'd be reticent to invest in it for basically the reasons you mentioned. If I were to invest, it would be with the expectation that they'd be acquired in the short- to medium-term.

[Sniper]

JCOM is a 10 year old company with a history of being the acquirer, and serves 9 mil+ customers...

J2 Global History
Founded in 1995, j2 Global Communications, Inc. (NASDAQ: JCOM) provides individuals and businesses throughout the world with high value, time saving communications and messaging services, including industry-leading unified messaging capabilities, which j2 developed internally and introduced commercially in 1996.

How it all began
In 1994, Jaye Muller, a 25 year old German-born musician and "techno-entrepreneur," was touring England with his band and found that his constant movement in and out of different towns and hotels caused him to miss messages. Jaye was inspired with an idea to develop a computerized fax and voice messaging service that followed the subscriber no matter where he or she roamed. Together with his manager and business partner, Jack Rieley, they created JFAX (now, j2 Global Communications).

Business Milestones
April 1997: j2 closes its first round of venture capital financing with Orchard Capital Corporation.
June 1998: j2 completes a Private Placement led by Donaldson, Lufkin & Jenrette
July 1999: j2's Initial Public Offering (IPO)
January 2000: j2 acquires Fax-for-Free, Inc.
March 2000: j2 acquires the assets of TimeShift, Inc.
November 2000: j2 acquires eFax, Inc.
March 2004: j2 Global acquires The Electric Mail Company
August 2004: j2 Global acquires Onebox unified communications assets from Call Sciences, LTD
July 2005: j2 Global Acquires Data On Call Assets
November 2005: j2 Global acquires Puma Unified Communications Limited

Core Technology
j2's core application allows users to receive faxes and voicemails into their e-mail accounts via a patented solution. Other services include sending faxes and voicemails through the Internet and PSTN, on-demand conference calls over the Web, accessing and managing messages by telephone, and fax broadcasting. j2's services turn the customer's e-mail Inbox into a single repository for all messages and provides for message retrieval through e-mail or by telephone. Users realize reduced costs, enhanced efficiency and greater security & privacy over traditional methods of messaging and communicating.

Financials
Over the past 34 consecutive quarters, j2 Global has increased its revenue from quarter to quarter. More importantly j2 Global has reported 15 consecutive quarters of positive GAAP net earnings and 10 years of revenue growth 30% or better.

For the quarter ended September 30:
Revenues of $37.7 million
Gross Profit of $29.6 million
Gross margin of 78.5%
GAAP Net Earnings of $18.2 million

Funds available for use in the business totaled $131.6 million at September 30, 2005.

As of September 30, 2005, j2 Global had more than 10.2 million subscribed DIDs (direct inward dial phone number) of which 691,096 are direct Paid DID and 9,549,886 are Free DID's.

Management
j2 Global Communications is led by a world-class management team, overseen by an experienced and committed board of directors. The company's senior management represents individuals with deep data and voice communications expertise who have distinguished themselves over the past two decades in executive positions at leading global firms.

Top Institutional holders, as of Sept 30th
BLAIR (WILLIAM) & COMPANY, L.L.C. - 10.55%
GOLDMAN SACHS GROUP INC - 7.14%
MUNDER CAPITAL MANAGEMENT, INC. - 4.94%
CHURCHILL MANAGEMENT CORP - 4.45%
WASATCH ADVISORS INC - 4.25%
BARCLAYS BANK PLC - 4.20%
CANYON CAPITAL ADVISORS LLC - 4.17%
VANGUARD GROUP, INC. (THE) - 4.07%
RS INVESTMENT MANAGEMENT, L.P. - 3.78%
FMR CORPORATION (FIDELITY MANAGEMENT & RESEARCH CORP) - 3.28%

[AceHigh]

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Thanks for the info. It seems to me that these services don't have a very wide "moat" (i.e. competitors could provide similar options fairly easily, driving down the margins). Thus JCOM will likely see its 40% margins cut in the future.

Any other opinions?

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Yeah, I own this stock and it's performed very well for me.

The Fools like it ( 5 stocks we like (http://www.fool.com/news/commentary/2005/commentary05112309.htm?source=eptyholnk303100&logv isit=y&npu=y) ) it's in the IBD 100 and I have it rated as signifigantly undervalued. It's revenue has grown dramatically each year for the last 5 years.

[MowrMowr]

We are one of J2's competitors, and anyone who invests in them is very wise. They own a portfolio of patents and marks which make their product very tough to compete with. Smaller companies which try to compete quickly find out they are messing with the wrong people. eFax is *the* name in electronic fax / fax to email, and it will be *the* name probably forever. Their business is ridiculously profitable (a cursory look at their income statement is a lesson in how to run a Company), and they run it very well. They just said today they still expect to see 30% growth in 2006...a very strong company for at least the next few years it seems.

[MowrMowr]

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Thanks for the info. It seems to me that these services don't have a very wide "moat" (i.e. competitors could provide similar options fairly easily, driving down the margins). Thus JCOM will likely see its 40% margins cut in the future.

Any other opinions?

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Nobody's done it yet...it's not easy to build the kind of network they have. VoIP might make it possible for someone to do it, but J2 is quite litigious when threatened. There are only a few companies which have been competitors for a long time (myfax.com has been around for awhile, but does not even offer US DID's), and none of the competition has significant size (based on # of customer) in comparison to J2.

[Sniper]

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We are one of J2's competitors, and anyone who invests in them is very wise.

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A glowing endorsement from one of JCOM's competitors... care to share which company you work for?

[MowrMowr]

Very small company...nothing you've heard of. We run www.smartfax.com (http://www.smartfax.com) and www.faxmicro.com. (http://www.faxmicro.com.)

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They own a portfolio of patents and marks which make their product very tough to compete with.

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Ah, I hadn't considered the patent moat. This makes them much more attractive to me.

[Hornacek]

um... don't know why there isn't a post on this yet, but JCom was accidentally sold at $1 for 600,000 shares in Japan last night. The trader initially intended to sell ONE share at $600,000 yen. Mizuho Bank is probably going to end up losing $1 billion on this gaffe. lol!

[MowrMowr]

That was a Japanese company, not JCOM in the U.S.

[Uglyowl]

Interesting pick, thanks for sharing.

Standard & Poor's, who I respect a ton, has a 12 month price target of $53 (18% above today's price).

The only negative I could find was if Congress starts to tax each assigned phone number that would seriously hurt QCOM (Pacific Growth).