ESIC Easylink Services International Corp. - Class A (MM)

j2 Global Inc. (JCOM) reported better-than expected first-quarter 2012 financial results yesterday, with a record high quarterly revenue. The Board of Directors of j2 Global has raised its quarterly dividend by 2.4% from 21 cents per share to 21.5 cents per share. This is the company's third consecutive quarterly dividend increase.

Quarterly GAAP net income came in at $28.5 million or 61 cents per share compared with $30.9 million or 66 cents per share in the year-ago quarter. First-quarter earnings per share of 61 cents were well above the Zacks Consensus Estimate of 57 cents. Total revenue was approximately $86.7 million, up 18.1% year over year, and managed to beat the Zacks Consensus Estimate of $86 million. Subscriber Usage revenue stood at $84.8 million, up 16.4% year over year.

Quarterly gross margin was 81.7% compared with 78.5% in the year-ago quarter. Operating expenses in the reported quarter were $33.2 million compared with $34.5 million in the prior-year quarter. Quarterly operating margin was 43.4% compared with 31.2% in the prior-year quarter. However, churn rate, in the first quarter of 2012, was a record low of 2.4%. In the previous quarter, j2 Global added a net 22,000 DIDs (Dial In Demand).

In the first quarter of 2012, j2 Global generated $38.9 million of cash from operations compared with $38.2 million in the year-ago quarter. Free cash flow, in the reported quarter, was $18 million compared with $36.1 million in the prior-year quarter. At the end of the first quarter of 2012, j2 Global had approximately $193.3 million in cash & marketable securities on its balance sheet compared with $221 million at the end of 2011. Besides, the company had no outstanding debt on its balance sheet.

Future Financial Outlook

j2 Global maintained its fiscal 2012 financial outlook. Management expects total revenue in the range of $345 million - $365 million. Non-GAAP EPS is expected to remain same year over year. Non-GAAP effective tax rate is estimated in the range of 24% - 26%.

Our Recommendation

Despite stiff competition from EasyLink Services International Corp. (ESIC) and Open Text Corp. (OTEX), we believethe company’s strong financial position and diversified product pipeline, as well as its long-term growth prospects of outsourced value-added messaging services and continuous subscriber growth will drive earnings higher in the near future. We, thus, maintain our long-term Neutral recommendation on j2 Global. Currently, the company holds a short-term Zacks #3 Rank (Hold) on the stock.

 
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