Summary


Business:

Internet-based messaging and communications

Headquarters:

Hollywood

CEO:

Scott Jarus

Market Cap:

$47.2 million Dividend Yield: N/A*

Total Liabilities:

$8.2 million P/E Ratio: N/A

Long-Term Debt:

$180,000

* J2 Global Communications does not have earnings or pay dividends.

Scrambling to maintain a foothold in the nascent Internet messaging business, Hollywood-based J2 Global Communications (Nasdaq: JCOM) has been taking steps to support its shares.

Boosted in part by a $2 million buyback plan, its stock has climbed rapidly following the market’s reopening on Sept. 17, moving from $3.26 to a 52-week high $4.96 of on Nov. 8, a 52 percent increase. It has since backed off to $4.20.

The increases coincide with both the buyback plan and the Oct. 22 release of J2’s third quarter financial results, which showed earnings before interest, taxes, depreciation and amortization of $880,000. J2 also reported a 163 percent increase in revenues over the year-earlier period.

Even so, the company reported a net loss of $1.5 million (13 cents per diluted share), compared with a loss of $5.9 million (66 cents) in the like year-earlier quarter. Third quarter revenues were $8.6 million from $3.3 million in the like-year earlier period.

The company’s cash balance has dipped since the beginning of the year, reaching $22.8 million from $28.1 million as of Dec. 31, 2000.

Trading at 60 cents at the beginning of the year, the company was in danger of being delisted by the Nasdaq. In response, it announced a 1:4 reverse split, followed in the second quarter by the buyback announcement.

“Our stock is artificially low,” said Scott Jarus, J2’s president and chief executive. “We wouldn’t be buying it if we though it was overpriced.”

As of Sept. 30, J2 had spent $1.3 million and Jarus said the pace of the buyback has increased since the program was first announced in the second quarter. At present J2 has 11.3 million shares outstanding and a market capitalization of just under $50 million.

Jarus said that in addition to increasing revenues, the company has improved margins. “We are continuing to reduce our network costs in addition to paying attention to the fundamentals of the business,” said Jarus. “Networking has become more virtual.”

J2’s business model falls under the broad “universal messaging” category services that combine phone, fax and e-mail services. The company provides subscribers a local phone number, which it purchases from local service providers that receive both voice mail and fax messages. Those messages, whether text or audio, are delivered as an attachment to the customer’s personal e-mail.

“In spite of the economic downturn we continue to see tremendous customer acceptance,” said Jarus. “And we continue to see ways to increase our margins.”

It’s easy to see the potential for dollars in the existing market, according to Ronald Gruia, program leader for enterprise communications at Frost & Sullivan, a consulting firm. Every person or business with a phone, e-mail, fax machine and computer is a potential customer. However, he said customers have been reluctant to embrace the service.

“If you look at the adoption rates, they’re still small,” said Gruia. “Many customers are thinking ‘I have my voice mail, e-mail and fax machine, why do I need to invest in this type of solution’? End-user awareness is key. The market potential is huge but the penetration hasn’t been what it was (speculated) to be,” he said.

Bridging the gap between observer and subject, Jarus said the company is in the process of finding a partner in the wireless market. “We are in discussions with several entities that provide for (wireless) delivery,” he said. “More than likely it will be some sort of strategic partnership.”

Though it’s not something J2 has an interest in promoting, the recent anthrax scares may have had a positive effect on sales. “In comparing our week over week growth in paid subscriptions we’ve seen a four-fold increase since Oct. 2 (the date the first anthrax case was reported),” said Jarus.

Not surprisingly, he was reluctant to draw conclusions. “We have other programs going on and we’ve continued to grow our business,” Jarus said. “But the fact is we’ve seen the increase.”