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To: H James Morris who wrote (146055)	8/24/2002 9:37:18 PM
From: Victor Lazlo	Read Replies (1) \| Respond to of 164685

The New America Monday, August 26, 2002 End Of Fax Machines? This Firm Won't Mind BY ADELIA CELLINI LINECKER INVESTOR'S BUSINESS DAILY If Scott Jarus had his way, fax machines would go the way of the typewriter or dinosaur. He's chief executive of J2 Global Communications (JCOM), which specializes in paperless messaging and communications services. The firm serves more than 4 million customers worldwide. Some get its paperless fax service, called eFax. It offers Internet faxing and document management. Others sign up for JConnect, a unified communications system for faxing, voice mail, conference calling and document management. It's all designed to rid folks of their fax machines. But Jarus admits that hasn't been easy. "Using J2 services requires a behavioral change," he said. "People have in their minds that faxing has to involve a machine in which you put in a piece of paper and sends information to another machine that spits out a piece of paper. We had to convince people that that was your father's way of sending faxes." Moving Toward Profitability For years, J2 struggled - unsuccessfully - to turn a profit. Not only was it trying to change the way people think; it also had to deal with the deflated tech bubble. In 2000, J2 lost $1.96 a share. Last year it slashed that loss dramatically to 3 cents a share. Now the firm is solidly in the black. It's posted five straight quarters of profit. Second-quarter earnings hit 28 cents a share vs. 1 cent the prior year. Sales rose 44% to $11.3 million. No First Call analysts follow J2. But some industry watchers look for rapid growth from the company. One of them is Peter Davidson, a Burbank, Calif.-based independent technology analyst. "Within a couple years, it probably will be a $100 million-plus company that dominates the Web-based unified messaging space, is profitable and is relatively immune to sharp declines in quarterly revenue because it thrives on subscription revenue, not one-time product sales," he wrote in a report for International Data Corp., a market research firm. Even as the company struggled in the late 1990s and was delisted by the Nasdaq, Jarus and his team remained focused. First, it didn't blow all its cash on acquisitions and other ventures. Second, it stayed on message. J2 spent most of its time convincing people - and, more important, corporate clients - that its services would add value to their businesses. The firm claims it can help clients save up to 25% on messaging costs, depending on the size of the business and the services it requires. Part of J2's success stems from the fact that it was the first to market, Davidson says. "They entered this marketplace right at the beginning," he said. The key to continued growth is tapping into the corporate segment of its business. J2 is doing that. In the second quarter, the firm's corporate sales program generated $2.8 million in revenue, more than double the prior-year total. It snapped up business from large companies such as Bristol-Myers Squibb Co. (BMY), Enterprise Rent-A-Car, Eastman Kodak Co. (EK), Farmers Insurance Group, Kraft Foods Inc. (KFT) and Sears, Roebuck & Co. (S) Business clients are more lucrative than individual subscribers because the latter don't often upgrade beyond the free eFax services. Corporate clients usually sign up for paid services and often upgrade to more expensive services. "If you look at the consumer segment, you have a couple thousand individuals signing up at this point and (the company's) revenue growth pace has slowed," Davidson said. "But it's expected to pick up again because of its focus on the business segment." J2's recent growth might have been stronger were it not for the staggering economy, Jarus says. "Some of our growth has been constrained because of the general business malaise," he said. "Market pressure decreases the need for our services." He says J2 has been hit on a number of fronts. For one thing, the economic slump has kept entrepreneurs from starting new businesses, which has reduced demand for the firm's services. Large layoffs also reduce the need for support systems like the ones J2 provides. Finally, the company's advertising revenue has taken a hit the last couple of quarters. Web site ads generate revenue for J2's free services, including some eFax offerings. Jarus says ad revenue has slipped three straight quarters - from $895,000 in the fourth quarter of 2001 to $705,000 in this year's second quarter. Few Rivals The health of the economy remains a concern. Still, IDC projects that the messaging industry will generate $1.7 billion in sales in 2004 vs. $132 million three years ago. J2 is in a good spot to take advantage because it already has a global network. It'd be difficult and expensive for another company to duplicate that network, experts say. "To step into this space is very risky, so not that many people can jump in," Davidson said.