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J2 Global Shares Sink After Lower Forecast

The L.A. firm says it will miss analysts' estimates for the current quarter but largely because of one overly rosy outlook.

October 22, 2003|Josh Friedman | Times Staff Writer

The "short sellers" betting against Los Angeles-based J2 Global Communications Inc. finally had their day Tuesday, as the company's fourth-quarter earnings outlook sparked a 24% plunge in the volatile stock.

Shares of the provider of fax and messaging services tumbled $10.39 to $33.45 on Nasdaq one day after the company said earnings in the current quarter would fall shy of the average estimate of Wall Street analysts.

But the shortfall was largely because the Wall Street average was skewed by one analyst whose estimate was far above the pack, J2 Global said.

Nonetheless, investors hammered the stock, even though the company also reported that profit beat estimates in the quarter ended Sept. 30.

The stock, a longtime target of short sellers skeptical of the company's rapid revenue and profit growth in the last year, is down 28% from its all-time closing high of $46.70 on Oct. 8 but still is up 251% this year.

Short sellers borrow stock and sell it, betting the price will drop. It if does, they can buy back the shares later at a lower price and pocket the difference.

The number of J2 Global shares sold short jumped from 6.4 million in November to 9.5 million by April. But the shorts were forced to pull back as the stock zoomed in spring and summer. The shorted total was 7.3 million as of mid- September.

Late Monday, J2 Global said it earned $7.2 million, or 28 cents a share, in the third quarter, up from $3.9 million, or 16 cents, a year earlier. Analysts had expected 27 cents.

Sales were $18.9 million in the latest quarter, up 51% from a year earlier.

J2 Global also estimated that profit in the current quarter would be 31 cents a share. That was lower than the 34-cent average of five analysts surveyed by earnings tracker Thomson First Call in Boston.

But Chief Financial Officer R. Scott Turicchi said in a memo to analysts that news reports had put a misleading spin on J2 Global's fourth-quarter guidance. He said four analysts had forecasts ranging from 30 cents to 32 cents a share, while one "outlier" had forecast 48 cents.

The outlier, Advest Inc.'s Stephen Levenson, acknowledged in an interview that he had been "a little overly optimistic." In particular, Levenson said, he overestimated the effect of J2 Global's recent price increases for its monthly services.

Still, Levenson reiterated his "buy" rating on the stock Tuesday, saying growth prospects remained robust.

Daniel Ernst, who follows J2 Global at Rodman & Renshaw, also called Tuesday's sell-off a buying opportunity, noting: "The company guided upward as to what we were estimating and what the company was previously estimating."

None of the explanations muted the glee of the stock's bashers on its Yahoo message board Tuesday, who put up a barrage of posts such as "Nice stock, losers!" and "Like taking candy from a moron."

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