Let Your Portfolio Touch the Clouds With This Stock
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This is the information age, and here, people accept a company’s merit on the basis of its ability to quickly and efficiently convert data into results. This need for results has led to the rapid emergence of cloud service providers that have equipped businesses with the tools and services they need to succeed. J2 Global (NASDAQ: JCOM), a leading cloud services provider, has become a known brand in the world of cloud services and a hit among investors.
Great performance: check
Shares of J2 have nearly doubled in value over the year thanks to consistent performance. It also gained nearly 4% in price after the second quarter earnings call. J2’s management termed the second quarter as one of the best in terms of overall performance. The company comfortably beat top-line estimate with quarterly revenue of $141.4 million, an increase of 58% on a year-over-year basis. As a result of high revenue, non GAAP EPS came in at $0.83 per diluted share, compared to $0.70 in the second quarter of 2012. The massive improvement in performance also propelled the company to increase its quarterly dividend from $0.24 per share to $0.2475 per share.
Business growth: check
J2 has managed its business under two huge verticals: Business Cloud Services and Digital Media. The company actually started out with the digital media business in late 2012 after it acquired Ziff Davis in November. I must admit that J2 has done a phenomenal job in just three quarters to become a valuable brand in this industry, thereby attracting a greater number of advertisers.
J2 has made some smart and valuable acquisitions in the last few months, with the latest one being the acquisition of IGN in order to increase its portfolio of digital properties. As this article points out, IGN’s specialization in video content, coupled with Ziff Davis’ strength in data analytics, will only increase its market reach.
One of the main components of J2’s cloud services, online faxing, has been a major contributor to its overall revenue. While the expansion of J2’s business has led to a reduction in percentage contribution of faxing services, it is growing reasonably well.
Besides a surge in metrics like revenue and net income, another positive aspect in the second quarter results was a record low cancellation rate. The cancellation rate fell to 2.21%, compared to 3.3% in the year-ago period, displaying the mettle of company’s well-trained employees, as well as confidence of clients in its services.
Combating competition: check
While J2 global had a robust second quarter, its rival Citrix (NASDAQ: CTXS) also had a decent quarter, with sizable growth in its SaaS business. Citrix has shown considerable skill in providing cloud services to small and big businesses, which was proved just last week after leading analyst firm IDC announced the company’s GoToAssist solution package was the global market share leader in remote support solutions. While Citrix has grown revenue at double-digit rates over the last few years, the movement of its share price has not kept up with the growth.
As of now, the company is betting largely on its cloud network platform NetScaler, which has achieved significant success in the cloud business. NetScaler is preferred by enterprises because it provides an integrated solution for setting up and operating a cloud-based platform with precision. For the record, NetScaler saw a massive gain of 46% in second quarter revenue, as well as an increase in customer meetings.
Amdocs (NYSE: DOX) has been quite a steady stock in terms of price movement, gaining slowly for most part of the year. The stock has delivered approximately 21.3% in returns to shareholders, compared to the S&P 500's total return of 23.3% over the last 12 months.
Recently, Amdocs added another feather to its cap by grabbing a five-year agreement with Vodafone for managing its customer care and billing domain. This is a commendable achievement considering the fact the cellular network providers are the company’s major revenue generators. In the North American region, carriers like AT&T and T-Mobile are critical to Amdocs’ operations, and the company could use the agreement with Vodafone to secure big wins with American carriers.
Enough reasons to buy!
For any investor, the essential job is to effectively analyze a company in order to plan an investment. When a company has multiple products/services and sources of revenue then this analysis becomes complicated. However, J2 is an easily comprehensible business, and investors can conveniently understand the sources of revenue and its sustainability.
Additionally, it is quite a cash-rich company, with cash and cash equivalents of approximately $214.9 million as of June 30. In the second quarter, J2 generated $66 million in free cash flow on account of high revenue and better margins.
Currently, J2 is trading at a PBV ratio of around 3.6, which is quite reasonable when compared to its peers. Also, the stock has proved its worth by delivering a return of around 81%, which is around 3 times the S&P 500 total return over the last year. J2 is definitely a worthy buy.
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Mihir Mehta has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!