Citron recently published a report with regard to j2 Global (NASDAQ:JCOM) that pointed out key fundamental challenges the company is likely to face. The root of the argument was a couple of sentences from a recent 10-K filing and details with regard to a patent. When you put the two together, it really does spell danger for JCOM and it's e-fax services. JCOM was never very clear about how much money the e-fax services brought in until very recently, in a 10-K filing, they had the following to say...
“We rely heavily on the revenue generated by our fax services... Currently, a substantial portion of our revenue is fax-to-email related and constitutes 42% of our consolidated revenues.
So, e-fax is a big driver for revenue at J2 Global... so what? Well, this is actually a very big deal. That's because JCOM has a key patent that protects its e-fax services from the competition. That patent is US patent 6208638. This patent is in Citron's opinion, a metaphorical moat that protects 40% of the company's top line revenue and likely more than 75% of the company's net proceeds. However, that metaphorical moat that JCOM is struggling so desperately to hold onto is going to expire in 13 months!
Based on this information, Citron issued a report that outlines the issue in great detail, explaining that J2 Global is a dangerous investment and that it's time to sell. Ultimately, this sent JCOM screaming downward!
JCOM Responds To Citron
J2 Global responded to Citron's statements early this morning with a statement of their own. However, JCOM was very vague in their response. Here's what JCOM had to offer...
J2 is aware of a report issued yesterday that we believe is both factually incorrect and wrongly critical of J2's businesses and future prospects. We believe J2's historic performance speaks for itself and we have tremendous confidence in our businesses and their prospects.
J2 intends to provide additional detail on the profitability and prospects of our businesses. This will allow investors to form their own opinions and draw their own conclusions as to the value and prospects of J2.
What We Can Expect To See Moving Forward
This is a very interesting one, and it's hard to call. However, I can say that I'm leaning more toward the company trending down than I am leaning toward upward trends. While the stock is recovering slightly today, I don't think the recovery would last very long. After reading yesterday's report from Citron, I decided to do my own research, and every point the company made was one I was able to double and triple verify. Even their comments with regard to Google (NASDAQ:GOOGL) trends in e-fax were right on the money! With that said, I do believe that when the JCOM patent on e-fax services expires, the company is likely to be in a world of hurt as the protection for their core product will be gone. While this may not cause very much pain in the short term, the long run looks damning!