Foolish Forecast: j2 Global's Growing Moat

The wait is almost over. But before Wednesday's announcement of its third-quarter results, let's take a peek behind the curtain of Internet fax and messaging services provider j2 Global (Nasdaq: JCOM).

What analysts say:

• Buy, sell, or waffle? Of the 10 Wall Street analysts following j2 Global, six say buy, three say hold, and one says to sell the stock. In our Motley Fool CAPS investor database, 246 of our 73,000-plus users have weighed in with an opinion on j2 Global, coming together to give the company a solid four-star rating.
• Revenues. The average estimate for third-quarter revenue lands at $56.9 million, 24% ahead of the same period last year.
• Earnings. The analyst pool, on average, is expecting the company to post earnings of $0.37 per share.

What management says:
Last quarter, j2 Global management struck a very upbeat tone regarding growth in its business. Hemi Zucker, co-president and CEO, stated, "We are delighted with this quarter's rate of customer growth," and that "the growth in our voice service customer base exceeded our expectations as we enhanced our personnel and marketing programs for these services." The company is ramping up spending to take advantage of this growth and is doing all it can to make it easier for customers to adopt its Internet fax services, including enabling number porting.

What management does:
Price increases being rolled out across the j2 Global customer base have been helping prop up margins without a significant impact on customer defections, exactly as j2 Global management, and investors, had hoped.

Margins	3/06	6/06	9/06	12/06	3/07	6/07
Gross	79.0%	78.7%	78.9%	79.7%	80.0%	80.5%
Operating	41.3%	40.3%	38.8%	36.5%	37.0%	37.7%
Net	34.3%	33.4%	29.1%	29.3%	29.6%	30.1%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Impressively, j2 Global has been very successful in carving out a profitable niche under the nose of traditional telecoms such as AT&T (NYSE: T  ) and Verizon Communications (NYSE: VZ  ) . Its services are compelling enough to weather recent price increases and withstand alternative software-based communication services from companies such as Microsoft (Nasdaq: MSFT  ) and even Google (Nasdaq: GOOG  ) .

Another facet of j2 Global's business is a growing effort to license patented technology. While there were no new license agreements announced this quarter, it will be interesting to see how j2 Global's licensing revenue develops. With all the competition in the space for business communications, the company could someday be generating a significant amount of high-margin cash by licensing its patented technology -- as do InterDigital (Nasdaq: IDCC  ) and Qualcomm (Nasdaq: QCOM  ) -- and providing a strong moat at the same time.

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