Investment Thesis
J2 Global Inc (NASDAQ:JCOM) was founded in 1995 and went public in 1999. During their first few years as a public company, j2 Global generated operating losses; however, since 2002 the company has strung together an impressive record of rapid growth.
They initiated their first dividend in 2011, and on February 9, 2017 they increased their dividend to 2.8%, which remarkably marked their 22nd successive quarterly dividend increase. Although the company only offers a current yield of 1.8%, it has grown its dividend at a compound average growth rate of 27.1% since they initiated one in 2011.
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Importantly, j2 Global is currently available at a sound valuation relative to its expected future earnings growth of 16% on average over the next 2 years. Consistent with their long-term track record, j2 Global reported better-than-expected earnings per share in the 4th quarter of 2016. Consequently, I offer this research candidate for those investors interested in earning an above-average total return through a combination of capital appreciation and a growing dividend.
Thesis For Continued Growth
J2 Global Inc (NASDAQ:JCOM) offers Internet services worldwide and operates through 2 segments, Business Cloud Services and Digital Media. However, the company has historically generated growth through mergers and acquisitions. The company completed 22 acquisitions in 2016, and 6 acquisitions in the 4th quarter alone. This included Everyday Health, Inc. their largest acquisition to date by subsidiary Ziff-Davis LLC.
Importantly, this definitive business strategy implies that an investment in j2 Global today is likely to be an entirely different investment in the future. On the other hand, it is through these acquisitions where future growth might come from. The following taken from j2 Global’s website summarizes the company’s merger and acquisition business strategy:
“M & A
Core to j2’s business strategy is the acquisition of assets, companies, and intellectual property. Our M&A efforts are global and focus on Cloud Services especially in the following areas: (i) online data backup; (ii) voice services; (iii) email and email marketing; and (iv) internet based fax solutions. In addition, we also look for additional web properties in the Digital Publishing space focusing on technology and gaming.
j2 strongly believes in its ability to leverage its core strengths – successful distribution of Cloud Services on a cost effective basis, a disciplined approach to managing costs, successful integrations of companies and a data centric approach to running companies as well as access capital for transactions up to $1 billion in valuation. To date, j2 has acquired more than 40 companies/business activities around the world, providing a well-received and quickly executed “exit” path to the acquired entities’ owners. In addition, in many cases, it provides an opportunity for the acquired companies’ owners and employees to be a part of a bigger endeavor.”
For further insight into the company and its operations to include its future growth potential, I offer the following short business description courtesy of S&P Capital IQ:
“j2 Global, Inc. engages in the provision of Internet services worldwide. It operates through two segments, Business Cloud Services and Digital Media.
The Business Cloud Services segment offers cloud services to sole proprietors, small to medium-sized businesses and enterprises, and government organizations, as well as licenses its intellectual property rights to third parties.
This segment provides online fax services under the eFax and MyFax names; on-demand voice and unified communications services under the eVoice and Onebox names; online backup solutions under the KeepItSafe, LiveDrive, and LiveVault names; hosted email security, email encryption, and email archival services under the FuseMail name; email marketing service under the Campaigner name; and cloud-based CRM solutions under the CampaignerCRM name.
The Digital Media segment operates a portfolio of Web properties, including PCMag.com, IGN.com, Speedtest.net, AskMen.com, and TechBargains.com that offers technology products, gaming and men’s lifestyle products and services, news and commentary related products and services, speed testing for Internet and network connections, and online deals and discounts for consumers, as well as professional networking tools, targeted emails, and white papers for IT professionals.
This segment also sells display and video advertising on its owned-and-operated Web properties and third party sites, as well as targeted advertising across the Internet through various networks; sells business-to-business leads for IT vendors; promotes deals and discounts on its Web properties for consumers; and licenses the right to use PCMag’s Editors’ Choice logo and other copyrighted editorial content to businesses.
The company was formerly known as j2 Global Communications, Inc. and changed its name to j2 Global, Inc. in December 2011. j2 Global, Inc. was founded in 1995 and is headquartered in Los Angeles, California.”
