j2 Global Communications
While earnings numbers are important, for subscription-based businesses there are other key metrics. One area where j2 Global shines is its low churn rate (the percentage of customers who do not renew subscriptions), a testimony to the strength of j2 Global's offerings. With the 33% price increase implemented in the fourth quarter of 2003, the churn increased to 3.3%. Since then the churn rate is back to historic lows of below 3%.
Another significant measure is average revenue per user, which j2 Global has managed to grow from $15.36 in the third quarter of 2003 to around $16.95 this quarter. It is not just paid subscriptions that contribute to the top line -- the company also realizes advertising-related revenue.
However, a disappointment for the quarter is the lower rate of subscriber revenue growth. In the third quarter, j2 Global experienced the best quarterly paid sign-ups in its history, with just under 46,000 new subscribers. Despite this, subscriber revenue grew only 7.7%, down from 13.6% the previous quarter and dropping by 1.5% year over year. While it is premature to conclude anything from one quarter, this number should be watched next quarter to see whether j2 Global can sustain its growth.
Notwithstanding this disappointment, j2 Global has projected top-line growth of 40% and earnings growth of 30% to 35% for fiscal 2005. The company is backed by strong financials and has yet to leverage its intellectual property portfolio fully. Deals with multiple voice over Internet protocol carriers including AT&T
This stock has been a longtime attraction for short sellers, but on current evidence there are many better short candidates than j2 Global. The company sells at only 20 times trailing earnings, yet boasts 11 straight quarters of earnings growth to complement gross margins of 84.3%, $83.9 million in cash, and nominal debt. Shorts are advised to stay far away from this one.
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Fool contributor Tim Goh does not own any stake in the companies mentioned.