Electronic Fax? Really. Doing The Time-Warp Amongst J2global.Com
Efax is yesterday. You know the fax automobile you lot guide hold out in that location inwards the cloud where you lot have a fax (with a dedicated line) in addition to they ship you lot the fax via email. And you lot ship the fax via e-mail - you lot post it to your electronic fax provider in addition to they fax it for you.
Electronic fax is so yesterday that when I think nearly it I equally good think of dial-up internet, I am working inwards the Australian Treasury, I had an American lady friend amongst a PhD inwards economic science in addition to the Spice Girls are the hottest band inwards the world. (And my lady friend objected to the Spice Girls which did non seem sporting...)
Actually electronic fax does non figure real much inwards my life at all. I guide hold sent exclusively ane or ii faxes inwards the concluding decade in addition to I guide hold received none. The closest I acquire to faxing is scanning a document in addition to emailing that.
So it was a bully surprise to come upwardly past times J2Global.com (JCOM:NASDAQ). You run across J2Global is an electronic fax fellowship - it is the erstwhile e-fax. It is the exclusively create inwards electronic fax I remembered.
And I could non imagine that it perhaps had nearly 300 ane K one thousand revenue in addition to a marketplace cap of almost $1.5 billion.
Like really? Like who are you lot kidding?
And notation this was a cost to sales ratio of v - a number consistent amongst the most profitable or highest increment companies inwards the world. I hateful in that location are non many companies inwards established businesses amongst a cost to sales ratio of five.
And real few businesses that should last inwards such obvious reject equally electronic fax would ever deserve such a ratio.
But in that location it was, listed, amongst a large cap, fairly transparent looking accounts in addition to a stock that piece of cake levitated over the decade inwards much the way that bricks don't.
This was so unexpected a uncovering that I truly did double-take.
There was a bull-story relentlessly promoted of course of study - which was that J2Global was a "cloud company" inwards the sense that internet-fax was ane of the showtime applications out in that location "in the cloud" but it was a cloud fellowship a petty less sophisticated than Hotmail or the AOL "walled garden".
I had to uncovering a customer
I was wondering whether my sense amongst fax machines (they guide hold chop-chop locomote out irrelevant) was the universal one. I could non imagine existence a subscriber (at $16.95 a calendar month no less) to efax in addition to wondered why anyone else was.
I rang our foundation client - an industrialist nearly xv years older than me who is on the route quite a bit. I thought he mightiness last a subscriber - but he can't imagine wanting to join. He wondered where I found companies similar this.
So I kept quest people whether they would subscribe to an electronic fax somebody - in addition to I found ane - a fund manager who thought he paid $3 a calendar month in addition to it was earlier MyFax purchased his supplier (MyFax is owned past times Protus - to a greater extent than nearly them below). My friend at nowadays pays $6 a calendar month even though the cheapest cost on the MyFax website is $10 in addition to has been for some time.
The cost differential was so large ($3 a calendar month versus $16.95 per month) that I wondered why anyone would pay it. It is fairly easy to uncovering suppliers at $8-9 a month. Faxage.com in addition to others guide hold prices for real low-cal users down to $3.50 per month. And lets human face upwardly it - most people who work faxes are real low-cal users...
The showtime explanation for the continuation of the concern was inertia (which is the same argue why some people still use dial-up internet).
Inertia or ripping off your customers?
YouTube is a valuable resources - you lot tin commonly uncovering someone complaining nearly or proselytizing for a product.
In this instance it was complaining. You run across it is very hard to cease existence a efax client. The video below shows you lot how when you lot dial upwardly they tell you lot that you lot should cancel your concern human relationship on the net. On the mesh it gives you lot a number to dial upwardly (with a long wait). That gives you lot some other number (with a long wait) in addition to that tells you lot to cancel on the net.
You acquire the idea: telephone centre hell.
I wondered whether this was typical: whether the modus-operandi of this concern was to hold ripping people off even when they wanted to cancel.
Alas in that location is potent evidence that it is. One of my colleagues found that the Better Business Bureau gave the fellowship an F rating (on an A+ to F scale). The Better Business Bureau had closed 419 complaints against the fellowship inwards the concluding year. Here is a summary:
This form of concern behaviour is harder to line off exterior the US. The the States seems to guide hold a civilization that accepts consumer rip-offs (predatory lending for example). Other cultures think of unconscionable conduct. This is unconscionable. In the the States I jurist it plant until they acquire a class-action lawsuit.
Anyway it is worse than only relying on inertia. The fellowship raises rates regularly in addition to rely on inertia non to object to or store higher rates. Here is a blog post which complaints nearly their charge per unit of measurement raising:
But hither is the nub of it. They raised the rates to $16.95 per calendar month inwards 2006. They guide hold non raised them since... in that location is a boundary to how much you lot tin gouge - fifty-fifty if you lot locomote out far so hard to locomote out that people guide hold to remain inwards a telephone centre queue for 3 hours or bring you lot to the Better Business Bureau only to exercise their rights...
And nobody would rationally sign upwardly - equally the same weblog post makes clear this service is at to the lowest degree twice equally expensive equally the competition. If you lot do a elementary mesh search you lot would uncovering that efax is poorly rated, in addition to actively disliked past times consumer groups. This is a dumb production to sign upwardly to.
But the revenue is nonetheless growing. Why? Why the hell would anyone desire to sign upwardly to this?
My showtime thought was that the accounts were a lie.
Falsifying the fraud theory
I run across a lot of stock fraud - in addition to I at ane time thought that they were only making the rising revenue up. After all I could non run across why revenue from electronic fax should last rising. It only seemed so unlikely.
And they truly are (at to the lowest degree inwards the words of their complaining customers) nasty. Customers only state the fellowship is a scam. Just the form of people who would mistaken accounts - or so I incorrectly thought.
Bolstering my theory that they were faking their accounts was their less-than-mainstream auditor. They work Singer Lewak LLP. The SEC database allows us to run across all the other companies audited past times them. It is non a listing of known frauds - but it is hardly inspiring.
So I tried to puzzle how they did it. The fellowship generates lots of cash but pays no dividend which makes it hard to confirm the cash is real. But if the cash is existent the profits are real. And if the cash is non existent the profits are non real.
So I tried to operate out whether the cash was real. Here is the residuum sheet:
During 2010 cash dropped from 197 to 65 ane K one thousand - the departure been spent on acquisitions. Goodwill went from 81 ane K one thousand to 282 ane K one thousand in addition to the cash period of time disceptation reveals that they spent $249 ane K one thousand on acquisitions - that $249 ane K one thousand existence cash generated over the concern over time.
If that $249 ane K one thousand was existent so the concern is existent - in addition to in that location is no wholesale fakery inwards the accounts. If they bought existent assets from real, unrelated people so I would conclude the accounts were belike to a greater extent than or less OK. If they purchased assets from parties I could non seat so they could last from mistaken parties or related parties. The exclusively assets you lot tin purchase amongst mistaken cash are mistaken assets in addition to you lot tend to guide hold to purchase mistaken assets from mistaken parties or related parties. So I went looking for the assets purchased in addition to who they purchased them from. This was my essay of fakery. [Lots of people guide hold asked how I do this. This is equally practiced an explanation equally whatever though in that location are to a greater extent than than a few tricks inwards the Bronte arsenal...]
So I went looking for what the acquisitions were. Here is the fundamental text from the 10K:
I had to operate out where they spent that $200 million. Being a methodical type I did the acquisitions inwards order.
This press release covers (1) Reality Communications, (2) Comodo in addition to (3) in addition to something called Quexion which is non on the listing of acquisitons. The total consideration is not material.
Mbox (3 above) is a small Australian supplier. It is hardly the work of $200 million. Nor was it Fusemail (number iv above) equally that had only 6000 subscribers in addition to the cost was non disclosed. Alban telecom (number 5) was equally good specifically described equally non material.
Venali inc (number vi above) was the first amongst a textile purchase price ($17 million). It equally good had $10 ane K one thousand of revenue in addition to the purchase involved the small town of some patent disputes.
By this fourth dimension I was getting excited. Nothing hither came unopen to existence a existent purchase using over $200 ane K one thousand inwards cash. For number 7 on the listing (KeepItSafe.com) I went to the Irish Gaelic companies work in addition to pulled the residuum sheet. This was a trivial purchase:
KeepItSafe.com is a remote-drive concern a fleck similar Amazon Cloud Drive but amongst much higher in addition to opaque pricing. They do non tell you lot their pricing on the website but I wrote to them for a quote:
50G - $75 per month
100GB - $100 per month
Additional GB is .80cent per month
This is around 12 times the pricing of Amazon leaving me wondering what this concern does at all. (If you lot wanted to protect your information would you lot sign upwardly for this fellowship or Amazon amongst the improve residuum sail in addition to exclusively ane 12th of the subscription price?)
I farther looked upwardly the directors in addition to they are non fundamental contributors to the tech world.
Whatever - it is, the pricing (opaque in addition to outrageously expensive) in addition to its lack of transparency or fifty-fifty an obvious competitive offering made me fairly for certain this was a nonsense business. (It may guide hold a production - but whatever - you lot tin acquire it elsewhere cheaper...)
Now I am getting really excited. I guide hold checked the showtime vii out of 8 acquisitions in addition to amongst ane exception (Venali Inc) they are either non textile or nonsense acquisitions.
I think I guide hold my adjacent Longtop Financial Technology. I was truly dancing about the office. (It happens - in addition to you lot do non desire to run across it...) We already had a small short on this stock but I was going to locomote out far a huge put-option seat in addition to run across what I could do to locomote out far pay. That form of money-making chance gives me goosebumps inwards excitement - non quite similar a xv twelvemonth erstwhile man child going on a appointment - but it is upwardly there... (It is equally good a real large proportion of Bronte's cumulative returns.)
But I am a thorough guy in addition to so I checked the concluding ane - Protus IP Solutions. And my "its a Longtop" thesis collapsed. Simply collapsed. You run across they purchased Protus for $213 million. If that $213 ane K one thousand were paid to dodgy parties or related parties I could guide chances a jurist that the $213 ane K one thousand in addition to the purchase was a fiction. But the vendors were highly reputable venture working capital missive of the alphabet funds: Bank of Montreal Capital Corporation, Edgestone Capital Venture Fund, L.P., B.E.S.T. Discoveries Fund Inc. in addition to New Millennium Venture Fund Inc. And the number was reported inwards the Canadian press.
So nosotros tin conclude the $213 ane K one thousand was real.
And that $213 ane K one thousand had to come upwardly from somewhere - in addition to the fellowship did non elevate it inwards the market. So nosotros know the fellowship truly generated that money. Protus is billed equally a "software equally a service" offering but it is inwards fact some other electronic fax company. MyFax - the service my friend subscribes to - is a Protus product.
What you lot are seeing hither is my thesis (that this was a Longtop trend fraud) collapsing about me. I danced about the work prematurely - in addition to the huge selection seat I was considering: good nosotros never seat it on.
I went habitation thinking I had done a decent ii days operate in addition to achieved non real much. This is - of course of study - the lot of a fund manager. (Most days nosotros laissez passer on real little...)
But I am nonetheless left pondering the business.
So what J2Global truly is
Much to my chagrin nosotros at nowadays know that J2Global really is a fax company. And it really generates a lot of cash which agency that in that location really are suckers (ahem customers) who pay $16.95 per calendar month for a fax line from a fellowship that it is real hard to unsubscribe from.
But over fourth dimension the fellowship builds upwardly cash in addition to so buys something - some other fax company.
We equally good know that it puts upwardly the rates. My friend to a higher house who had the fax at MyFax.com originally had it at some other provider (and he remembers it equally $3 per month). That fellowship was acquired. Now $6 a month. Now it is within J2Global the cost volition force upwardly in addition to upwardly - in addition to may eventually laissez passer on $16.95 - a cost where J2 seems to stop.
And this truly is a concern nearly yesterday: he sends less in addition to less faxes each twelvemonth in addition to so does everyone else. But J2 Global volition elevate his rates haemorrhage him for equally much cash equally they tin earlier he gives upwardly (analog) fax equally an antiquity similar dial-up internet.
Some numbers
Protus says they had revenue at nearly $72 ane K one thousand per annum. The other pregnant acquisition (Venali) had $10 ane K one thousand revenue per annum. Acquisitions thus added revenue of nearly $80 ane K one thousand per annum or $20 ane K one thousand per quarter. The other acquisitions had to last a few ane K one thousand more.
I looked at the first quarter of this year (the showtime total quarter amongst those acquisitions which tin last compared to a PCP without those acquisitions). Revenue goes from $60 ane K one thousand to $73 million. That is a dainty ascent - but non quite plenty to concern human relationship for the acquisitions. There is a pretty sudden underlying decline.
The adjacent quarter they seem to guide hold seat some prices upwardly (which is what they do) in addition to revenue increment resumes. But you lot guide hold to imagine that the clients are kicking dorsum - piece of cake fading away fifty-fifty if it does bring 3 hours on concur to cancel your account.
So what nosotros guide hold hither is truly pretty directly forward. It is a concern inwards reject - but it is dressed upwardly equally a cloud computing fellowship which I jurist makes people happy. It can't last much of a cloud computing fellowship because property, flora in addition to equipment is exclusively $13 ane K one thousand in addition to is non growing in addition to cloud computing is working capital missive of the alphabet intensive.
Because it is (at to the lowest degree from an equity-marketing perspective) a cloud computing fellowship it sports a respectable PE multiple in addition to a reasonable stock price. But revenue increment comes from ii places (a) buying the competitors in addition to (b) raising prices - in addition to that is offset past times the full general reject of the electronic fax industry.
They boring that reject past times making for certain that customers guide hold a really hard fourth dimension unsubscribing.
Sure it generates cash - but it spends the volume of that cash over fourth dimension on acquisitions - necessary to truly acquire revenue growth.
The administration acquit equally if the stock is expensive. They are selling their shares at a pretty practiced clip. The administration at Salesforce.Com are also selling shares at a pretty practiced clip in addition to that seems non to wound them. I guide hold sometimes purchased shares from administration in addition to done well.
And I could last wrong inwards the center thesis. Electronic Fax may truly guide hold a future. Maybe they tin crank the rates to $30 a calendar month in addition to the customers volition locomote out along to dear them. It seems unlikely to me - but no to a greater extent than unlikely that some hip eighteen twelvemonth erstwhile could do a Spice Girls comprehend on YouTube in addition to acquire millions of views.
And that happened. And to consummate the homage they repeated the Spice Girls play tricks of doing the video inwards ane continuous take.
John
PS. Disclosure: I nonetheless guide hold my modest brusque on. It volition remain modest - technical obsolescence is something nosotros to a greater extent than oftentimes than non short. Hyping erstwhile industries amongst stylish words (like "cloud" in addition to "software equally a service") is equally good something nosotros to a greater extent than oftentimes than non short. But my excitement: that was misplaced.
Electronic fax is so yesterday that when I think nearly it I equally good think of dial-up internet, I am working inwards the Australian Treasury, I had an American lady friend amongst a PhD inwards economic science in addition to the Spice Girls are the hottest band inwards the world. (And my lady friend objected to the Spice Girls which did non seem sporting...)
Actually electronic fax does non figure real much inwards my life at all. I guide hold sent exclusively ane or ii faxes inwards the concluding decade in addition to I guide hold received none. The closest I acquire to faxing is scanning a document in addition to emailing that.
So it was a bully surprise to come upwardly past times J2Global.com (JCOM:NASDAQ). You run across J2Global is an electronic fax fellowship - it is the erstwhile e-fax. It is the exclusively create inwards electronic fax I remembered.
And I could non imagine that it perhaps had nearly 300 ane K one thousand revenue in addition to a marketplace cap of almost $1.5 billion.
Like really? Like who are you lot kidding?
And notation this was a cost to sales ratio of v - a number consistent amongst the most profitable or highest increment companies inwards the world. I hateful in that location are non many companies inwards established businesses amongst a cost to sales ratio of five.
And real few businesses that should last inwards such obvious reject equally electronic fax would ever deserve such a ratio.
But in that location it was, listed, amongst a large cap, fairly transparent looking accounts in addition to a stock that piece of cake levitated over the decade inwards much the way that bricks don't.
This was so unexpected a uncovering that I truly did double-take.
There was a bull-story relentlessly promoted of course of study - which was that J2Global was a "cloud company" inwards the sense that internet-fax was ane of the showtime applications out in that location "in the cloud" but it was a cloud fellowship a petty less sophisticated than Hotmail or the AOL "walled garden".
I had to uncovering a customer
I was wondering whether my sense amongst fax machines (they guide hold chop-chop locomote out irrelevant) was the universal one. I could non imagine existence a subscriber (at $16.95 a calendar month no less) to efax in addition to wondered why anyone else was.
I rang our foundation client - an industrialist nearly xv years older than me who is on the route quite a bit. I thought he mightiness last a subscriber - but he can't imagine wanting to join. He wondered where I found companies similar this.
So I kept quest people whether they would subscribe to an electronic fax somebody - in addition to I found ane - a fund manager who thought he paid $3 a calendar month in addition to it was earlier MyFax purchased his supplier (MyFax is owned past times Protus - to a greater extent than nearly them below). My friend at nowadays pays $6 a calendar month even though the cheapest cost on the MyFax website is $10 in addition to has been for some time.
The cost differential was so large ($3 a calendar month versus $16.95 per month) that I wondered why anyone would pay it. It is fairly easy to uncovering suppliers at $8-9 a month. Faxage.com in addition to others guide hold prices for real low-cal users down to $3.50 per month. And lets human face upwardly it - most people who work faxes are real low-cal users...
The showtime explanation for the continuation of the concern was inertia (which is the same argue why some people still use dial-up internet).
Inertia or ripping off your customers?
YouTube is a valuable resources - you lot tin commonly uncovering someone complaining nearly or proselytizing for a product.
In this instance it was complaining. You run across it is very hard to cease existence a efax client. The video below shows you lot how when you lot dial upwardly they tell you lot that you lot should cancel your concern human relationship on the net. On the mesh it gives you lot a number to dial upwardly (with a long wait). That gives you lot some other number (with a long wait) in addition to that tells you lot to cancel on the net.
You acquire the idea: telephone centre hell.
I wondered whether this was typical: whether the modus-operandi of this concern was to hold ripping people off even when they wanted to cancel.
Alas in that location is potent evidence that it is. One of my colleagues found that the Better Business Bureau gave the fellowship an F rating (on an A+ to F scale). The Better Business Bureau had closed 419 complaints against the fellowship inwards the concluding year. Here is a summary:
Most complainants allege billing disputes or difficulty canceling accounts. Many customers complain of excessive concur times, anywhere betwixt 10 minutes in addition to upwardly to several hours, when attempting to verbalize to a client service representative. Other complainants allege the fax service does non operate or fax numbers are reassigned without notice or justification. H5N1 few complaints allege the fellowship does non let on the fact that the number of faxes you lot tin ship is express or that in that location is a per page accuse for every outgoing fax. The fellowship responds to some complaints past times canceling accounts, issuing refunds, in addition to apologizing for the suspension of service. In a few cases, the fellowship retrieves in addition to reactivates fax numbers or verifies the service is operational. The fellowship farther responds past times claiming customers guide hold to a greater extent than than ane concern human relationship or that they guide hold no evidence of cancellation.You run across these guys are appear a petty sudden (at to the lowest degree inwards the catch of the Better Business Bureau). You cancel an concern human relationship in addition to they volition hold billing you lot claiming no evidence of cancellation or that you lot guide hold to a greater extent than than ane concern human relationship (as if anyone would guide hold to a greater extent than than ane electronic fax number).
This form of concern behaviour is harder to line off exterior the US. The the States seems to guide hold a civilization that accepts consumer rip-offs (predatory lending for example). Other cultures think of unconscionable conduct. This is unconscionable. In the the States I jurist it plant until they acquire a class-action lawsuit.
Anyway it is worse than only relying on inertia. The fellowship raises rates regularly in addition to rely on inertia non to object to or store higher rates. Here is a blog post which complaints nearly their charge per unit of measurement raising:
eFax today announced that they are raising their already gouging rates from $12.95 a calendar month to $16.95 a month, unless you lot desire to “lock in” the $12.95 a calendar month charge per unit of measurement past times paying it annually (i.e. pay the $12.95 x 12 upwardly front end to the melody of to a greater extent than than $150.00 a year).
I telephone outcry upwardly it “gouging” because eFax originally started out amongst this model: you lot could either pay to acquire a fax number that was local to you, or acquire a gratis fax number which could guide hold an surface area code inwards whatever component subdivision of the U.S. except local to you.
At that fourth dimension it cost a mere $4.95 to guide hold the local number, which was component subdivision of a service called “eFaxPlus”. So eFax Plus was exclusively $4.95 a month, in addition to that was equally late equally the twelvemonth 2000.
However, ane time they got you lot hooked (and having distributed your fax number far in addition to wide) they boosted their fees to $12.95 a calendar month - to a greater extent than than double what you’d signed upwardly for - in addition to you lot were stuck, unless you lot were willing to lose the fax number you’d given out to everyone. Still, it was month-to-month so you lot could create a determination each calendar month equally to whether it was worth it.
But at nowadays they are doing it again, maxim either pay that $12.95 a calendar month upwardly front end for a total twelvemonth (a total of $155.40 a year), or pay the exhorbitant charge per unit of measurement of $16.95 a month. And, if this prompts you lot to create upwardly one's hear to cancel the service, permit me tell you lot upwardly front end that in that location is no piece of cake way to cancel your concern human relationship [the weblog post purports afterwards - non quoted - to tell you lot how to cancel the account].
Here is the relevant portion of the e-mail that I myself received today:
“The monthly subscription fee for all eFax Plus numbers on your concern human relationship volition last changing.
Starting on your adjacent billing date, the monthly fee for each of your eFax number(s) volition last $16.95.
You volition equally good have an enhanced degree of eFax service.
Receive upwardly to 130 fax pages in addition to ship upwardly to thirty fax pages gratis each month. Store faxes upwardly to ane twelvemonth amongst your eFax Message Center. Get 24/7 alive telephone support.
To lock inwards the erstwhile $12.95 charge per unit of measurement for the adjacent year, switch to annual billing past times clicking here.
Please response past times Oct 01, 2006.” ...
But hither is the nub of it. They raised the rates to $16.95 per calendar month inwards 2006. They guide hold non raised them since... in that location is a boundary to how much you lot tin gouge - fifty-fifty if you lot locomote out far so hard to locomote out that people guide hold to remain inwards a telephone centre queue for 3 hours or bring you lot to the Better Business Bureau only to exercise their rights...
And nobody would rationally sign upwardly - equally the same weblog post makes clear this service is at to the lowest degree twice equally expensive equally the competition. If you lot do a elementary mesh search you lot would uncovering that efax is poorly rated, in addition to actively disliked past times consumer groups. This is a dumb production to sign upwardly to.
But the revenue is nonetheless growing. Why? Why the hell would anyone desire to sign upwardly to this?
My showtime thought was that the accounts were a lie.
Falsifying the fraud theory
I run across a lot of stock fraud - in addition to I at ane time thought that they were only making the rising revenue up. After all I could non run across why revenue from electronic fax should last rising. It only seemed so unlikely.
And they truly are (at to the lowest degree inwards the words of their complaining customers) nasty. Customers only state the fellowship is a scam. Just the form of people who would mistaken accounts - or so I incorrectly thought.
Bolstering my theory that they were faking their accounts was their less-than-mainstream auditor. They work Singer Lewak LLP. The SEC database allows us to run across all the other companies audited past times them. It is non a listing of known frauds - but it is hardly inspiring.
So I tried to puzzle how they did it. The fellowship generates lots of cash but pays no dividend which makes it hard to confirm the cash is real. But if the cash is existent the profits are real. And if the cash is non existent the profits are non real.
So I tried to operate out whether the cash was real. Here is the residuum sheet:
j2 GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2010 in addition to 2009
(In thousands, except percentage amounts)
2010 | 2009 | |||||||
ASSETS | ||||||||
Cash in addition to cash equivalents | $ | 64,752 | $ | 197,411 | ||||
Short-term investments | 14,035 | 31,381 | ||||||
Accounts receivable, mesh of allowances of $2,588 in addition to $3,077, respectively | 17,423 | 11,928 | ||||||
Prepaid expenses in addition to other electrical current assets | 15,196 | 13,076 | ||||||
Deferred income taxes | 4,096 | 2,657 | ||||||
Total electrical current assets | 115,502 | 256,453 | ||||||
Long-term investments | 8,175 | 14,887 | ||||||
Property in addition to equipment, net | 13,567 | 13,366 | ||||||
Goodwill | 281,848 | 81,258 | ||||||
| Tradenames, net | 33,396 | 8,760 | ||||||
| Patent in addition to patent licenses, net | 18,102 | 14,955 | ||||||
| Customer relationships, net | 36,674 | 7,743 | ||||||
Other purchased intangibles, net | 11,782 | 7,633 | ||||||
Deferred income taxes | 12,967 | 8,717 | ||||||
Other assets | 610 | 229 | ||||||
Total assets | $ | 532,623 | $ | 414,001 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Accounts payable in addition to accrued expenses | $ | 25,112 | $ | 15,941 | ||||
Income taxes payable | 1,798 | 1,563 | ||||||
Deferred revenue | 16,938 | 11,411 | ||||||
Liability for uncertain revenue enhancement positions | 13,471 | — | ||||||
Deferred income taxes | 573 | — | ||||||
Total electrical current liabilities | 57,892 | 28,915 | ||||||
Liability for uncertain revenue enhancement positions | 24,391 | 46,820 | ||||||
Deferred income taxes | 15,293 | — | ||||||
Other long-term liabilities | 3,302 | 2,094 | ||||||
Total liabilities | 100,878 | 77,829 | ||||||
Commitments in addition to contingencies (Note 8) | — | — | ||||||
Stockholders’ Equity: | ||||||||
Preferred stock, $0.01 par value. Authorized 1,000,000 in addition to none issued | — | — | ||||||
Common stock, $0.01 par value. Authorized 95,000,000 at Dec 31, 2010 in addition to 2009; total issued 53,700,629 in addition to 52,907,691 shares at Dec 31, 2010 in addition to 2009, respectively, in addition to total outstanding 45,020,061 in addition to 44,227,123 shares at Dec 31, 2010 in addition to 2009, respectively | 537 | 529 | ||||||
Additional paid-in capital | 164,769 | 147,619 | ||||||
Treasury stock, at cost (8,680,568 shares at Dec 31, 2010 in addition to 2009, respectively) | (112,671 | ) | (112,671 | ) | ||||
Retained earnings | 381,145 | 301,670 | ||||||
Accumulated other comprehensive loss | (2,035 | ) | (975 | ) | ||||
Total stockholders’ equity | 431,745 | 336,172 | ||||||
Total liabilities in addition to stockholders’ equity | $ | 532,623 | $ | 414,001 | ||||
If that $249 ane K one thousand was existent so the concern is existent - in addition to in that location is no wholesale fakery inwards the accounts. If they bought existent assets from real, unrelated people so I would conclude the accounts were belike to a greater extent than or less OK. If they purchased assets from parties I could non seat so they could last from mistaken parties or related parties. The exclusively assets you lot tin purchase amongst mistaken cash are mistaken assets in addition to you lot tend to guide hold to purchase mistaken assets from mistaken parties or related parties. So I went looking for the assets purchased in addition to who they purchased them from. This was my essay of fakery. [Lots of people guide hold asked how I do this. This is equally practiced an explanation equally whatever though in that location are to a greater extent than than a few tricks inwards the Bronte arsenal...]
So I went looking for what the acquisitions were. Here is the fundamental text from the 10K:
During 2010, j2 Global acquired 8 businesses: (1) the vocalism assets of Reality Telecom Ltd, (2) the fax assets of Comodo Communications, Inc, (3) the unified messaging in addition to communications assets of mBox Pty, Ltd, (4) the assets associated amongst the e-mail hosting in addition to e-mail marketing businesses of FuseMail, LLC, (5) the assets of Alban Telecom Limited, a Great Britain enhanced vocalism services provider, (6) Venali, Inc., a Miami-based provider of enterprise Internet fax messaging solutions, (7) keepITsafe Data Solutions Ltd., an Ireland-based provider of online backup services, in addition to (8) Protus IP Solutions, Inc., a Canadian provider of Software-as-a-Service (SaaS) communication services in addition to solutions to the concern market.Now I had a operate program. I wanted to uncovering out what I could nearly the acquisitions. If the acquisitions were existent companies from reputable parties in addition to over $200 ane K one thousand was paid I could confirm that the concern was substantially real. If they were acquisitions from dodgy-brother-related-parties so I would last ringing the Longtop-type-fraud bell.
I had to operate out where they spent that $200 million. Being a methodical type I did the acquisitions inwards order.
This press release covers (1) Reality Communications, (2) Comodo in addition to (3) in addition to something called Quexion which is non on the listing of acquisitons. The total consideration is not material.
Mbox (3 above) is a small Australian supplier. It is hardly the work of $200 million. Nor was it Fusemail (number iv above) equally that had only 6000 subscribers in addition to the cost was non disclosed. Alban telecom (number 5) was equally good specifically described equally non material.
Venali inc (number vi above) was the first amongst a textile purchase price ($17 million). It equally good had $10 ane K one thousand of revenue in addition to the purchase involved the small town of some patent disputes.
By this fourth dimension I was getting excited. Nothing hither came unopen to existence a existent purchase using over $200 ane K one thousand inwards cash. For number 7 on the listing (KeepItSafe.com) I went to the Irish Gaelic companies work in addition to pulled the residuum sheet. This was a trivial purchase:
KeepItSafe.com is a remote-drive concern a fleck similar Amazon Cloud Drive but amongst much higher in addition to opaque pricing. They do non tell you lot their pricing on the website but I wrote to them for a quote:
50G - $75 per month
100GB - $100 per month
Additional GB is .80cent per month
This is around 12 times the pricing of Amazon leaving me wondering what this concern does at all. (If you lot wanted to protect your information would you lot sign upwardly for this fellowship or Amazon amongst the improve residuum sail in addition to exclusively ane 12th of the subscription price?)
I farther looked upwardly the directors in addition to they are non fundamental contributors to the tech world.
Whatever - it is, the pricing (opaque in addition to outrageously expensive) in addition to its lack of transparency or fifty-fifty an obvious competitive offering made me fairly for certain this was a nonsense business. (It may guide hold a production - but whatever - you lot tin acquire it elsewhere cheaper...)
Now I am getting really excited. I guide hold checked the showtime vii out of 8 acquisitions in addition to amongst ane exception (Venali Inc) they are either non textile or nonsense acquisitions.
I think I guide hold my adjacent Longtop Financial Technology. I was truly dancing about the office. (It happens - in addition to you lot do non desire to run across it...) We already had a small short on this stock but I was going to locomote out far a huge put-option seat in addition to run across what I could do to locomote out far pay. That form of money-making chance gives me goosebumps inwards excitement - non quite similar a xv twelvemonth erstwhile man child going on a appointment - but it is upwardly there... (It is equally good a real large proportion of Bronte's cumulative returns.)
But I am a thorough guy in addition to so I checked the concluding ane - Protus IP Solutions. And my "its a Longtop" thesis collapsed. Simply collapsed. You run across they purchased Protus for $213 million. If that $213 ane K one thousand were paid to dodgy parties or related parties I could guide chances a jurist that the $213 ane K one thousand in addition to the purchase was a fiction. But the vendors were highly reputable venture working capital missive of the alphabet funds: Bank of Montreal Capital Corporation, Edgestone Capital Venture Fund, L.P., B.E.S.T. Discoveries Fund Inc. in addition to New Millennium Venture Fund Inc. And the number was reported inwards the Canadian press.
So nosotros tin conclude the $213 ane K one thousand was real.
And that $213 ane K one thousand had to come upwardly from somewhere - in addition to the fellowship did non elevate it inwards the market. So nosotros know the fellowship truly generated that money. Protus is billed equally a "software equally a service" offering but it is inwards fact some other electronic fax company. MyFax - the service my friend subscribes to - is a Protus product.
What you lot are seeing hither is my thesis (that this was a Longtop trend fraud) collapsing about me. I danced about the work prematurely - in addition to the huge selection seat I was considering: good nosotros never seat it on.
I went habitation thinking I had done a decent ii days operate in addition to achieved non real much. This is - of course of study - the lot of a fund manager. (Most days nosotros laissez passer on real little...)
But I am nonetheless left pondering the business.
So what J2Global truly is
Much to my chagrin nosotros at nowadays know that J2Global really is a fax company. And it really generates a lot of cash which agency that in that location really are suckers (ahem customers) who pay $16.95 per calendar month for a fax line from a fellowship that it is real hard to unsubscribe from.
But over fourth dimension the fellowship builds upwardly cash in addition to so buys something - some other fax company.
We equally good know that it puts upwardly the rates. My friend to a higher house who had the fax at MyFax.com originally had it at some other provider (and he remembers it equally $3 per month). That fellowship was acquired. Now $6 a month. Now it is within J2Global the cost volition force upwardly in addition to upwardly - in addition to may eventually laissez passer on $16.95 - a cost where J2 seems to stop.
And this truly is a concern nearly yesterday: he sends less in addition to less faxes each twelvemonth in addition to so does everyone else. But J2 Global volition elevate his rates haemorrhage him for equally much cash equally they tin earlier he gives upwardly (analog) fax equally an antiquity similar dial-up internet.
Some numbers
Protus says they had revenue at nearly $72 ane K one thousand per annum. The other pregnant acquisition (Venali) had $10 ane K one thousand revenue per annum. Acquisitions thus added revenue of nearly $80 ane K one thousand per annum or $20 ane K one thousand per quarter. The other acquisitions had to last a few ane K one thousand more.
I looked at the first quarter of this year (the showtime total quarter amongst those acquisitions which tin last compared to a PCP without those acquisitions). Revenue goes from $60 ane K one thousand to $73 million. That is a dainty ascent - but non quite plenty to concern human relationship for the acquisitions. There is a pretty sudden underlying decline.
The adjacent quarter they seem to guide hold seat some prices upwardly (which is what they do) in addition to revenue increment resumes. But you lot guide hold to imagine that the clients are kicking dorsum - piece of cake fading away fifty-fifty if it does bring 3 hours on concur to cancel your account.
So what nosotros guide hold hither is truly pretty directly forward. It is a concern inwards reject - but it is dressed upwardly equally a cloud computing fellowship which I jurist makes people happy. It can't last much of a cloud computing fellowship because property, flora in addition to equipment is exclusively $13 ane K one thousand in addition to is non growing in addition to cloud computing is working capital missive of the alphabet intensive.
Because it is (at to the lowest degree from an equity-marketing perspective) a cloud computing fellowship it sports a respectable PE multiple in addition to a reasonable stock price. But revenue increment comes from ii places (a) buying the competitors in addition to (b) raising prices - in addition to that is offset past times the full general reject of the electronic fax industry.
They boring that reject past times making for certain that customers guide hold a really hard fourth dimension unsubscribing.
Sure it generates cash - but it spends the volume of that cash over fourth dimension on acquisitions - necessary to truly acquire revenue growth.
The administration acquit equally if the stock is expensive. They are selling their shares at a pretty practiced clip. The administration at Salesforce.Com are also selling shares at a pretty practiced clip in addition to that seems non to wound them. I guide hold sometimes purchased shares from administration in addition to done well.
And I could last wrong inwards the center thesis. Electronic Fax may truly guide hold a future. Maybe they tin crank the rates to $30 a calendar month in addition to the customers volition locomote out along to dear them. It seems unlikely to me - but no to a greater extent than unlikely that some hip eighteen twelvemonth erstwhile could do a Spice Girls comprehend on YouTube in addition to acquire millions of views.
And that happened. And to consummate the homage they repeated the Spice Girls play tricks of doing the video inwards ane continuous take.
John
PS. Disclosure: I nonetheless guide hold my modest brusque on. It volition remain modest - technical obsolescence is something nosotros to a greater extent than oftentimes than non short. Hyping erstwhile industries amongst stylish words (like "cloud" in addition to "software equally a service") is equally good something nosotros to a greater extent than oftentimes than non short. But my excitement: that was misplaced.
No comments