APM Final Presentation

1

• APM Final Presentation
• Portfolio Recommendation BUY JCOM
• Rachel Berry
• Peter Fields
• Bailey Gray
• Ben Mitchell
• Kendal Reed
• December 7th, 2009

2
Investment Thesis

• We place a BUY recommendation on j2 Global
  Communications(JCOM) for the following
  reasons    
• JCOM currently operates in a niche market which
  allowed them to add 11.6 million telephone
  numbers in FY2008 even during the economic
  downturn.
• JCOM has maintained high gross margins (80)
  over the last five years and should continue to
  do so in the future due to effective pricing and
  cost management.
• The market has depressed the stock price due to
  overall economy, not JCOMs results

3
Company Overview

• Founded in 1995, Headquartered in Hollywood, CA
• Fast Facts
• Current Stock Price (12/2/09) 20.25
• Market Cap 942 million
• TEV 723 million
• ROE (ttm) 22.0
• 2008 FY Revenue Growth 11.5
• Product Offerings
• Faxing
• Voicemail
• Email
• Callhandling
• Products and Services are offered in 3,500 cities
  in 46 countries

4
Historical Results
TTM Margins Gross Margin 81.5 EBITDA
Margin 46.2 Net Margin 28.3 Active
Telephones, 5 yr CAGR 15.9 Subscriber
Revenue, 5 yr CAGR 28.3
5
Growth Thru Acquisitions
Strategy also includes organic growth. JCOM has
57 patents related to its technologies, and the
ability to use economies of scale to provide
competitive prices.
6
Industry Overview

• JCOM operates in a niche market
• Large barriers to entry
• Acquisition of millions of telephone numbers
• Integrated global network
• Regulatory risk exists

7
DCF Valuation

• WACC 11.7
• Pro Forma provided on handout
• Bear Case stagnant growth
• Target Price range 22-23
• Bull Case stronger growth
• Target Price range 35-36

8
Relative Valuation

• Companies chosen based first on business
  similarity to JCOM and second on market cap
• CBEY
• OTC
• PGI
• TMRK

9
Relative Valuation (cont)

• TEV/EBITDA Analysis
• Forward TEV/EBITDA of 8.63x
• Resulting P of 33.18
• 64 undervalued

10
Relative Valuation (cont)

• ROE analysis supports TEV/EBITDA valuation
• JCOM does not have debt meaning ROE figures are
  not inflated

11
Impact for APM

• JCOM competes in Technology Sector and Internet
  software and services industry
• Market Cap of 942M small cap and good fit for
  APM philosophy
• APM recently sold ATT (same NAICS code) and much
  of CDC holding
• JCOM provides exposure to industry that in which
  we have limited investment
• The stock market has not adequately compensated
  the firm for its current success and future
  growth opportunities, with the price down over
  40 since peak