IDTC report
IDTC is a long-distance service provider, deriving about 59% of revenues
from prepaid calling cards, 37% from wholesale, 4% from internationally sold
prepaid, and nominal revenues from prepaid internet, including internet
telephony through its Net2Phone subsidiary. The wholesale and prepaid
businesses are under tremendous competitive pressure due to dropping
international rates and increased competition, and gross margins in these
areas have recently dropped from 32% to 20%. The analyst consensus is that
the prepaid and wholesale businesses are worth less than 1x revenues, and
the valuation is probably closer to.5x to .75x revenues or $8 to $14 per
share. Nonetheless, IDTC trades at $22.00 having traded as high as
$30/share, due hype surrounding the Net2Phone IPO. He has two thoughts
on Net2Phone: 1) the internet telephony business model will not work and 2)
even if one values Net2Phone at 15x estimated leading revenue, Net2Phone is
worth only $17/IDTC share.
Why won't Net2Phone work? The only reason to use internet telephony is
because it's cheaper (quality is much worse). The only reason it's cheaper
is because internet telephony traffic dodges RBOC access charges. We
believe that this "arbitrage" is going to be shut down: the Net2Phone
prospectus itself discloses that several RBOCs have initiated lawsuits
against internet telephony carriers for access charges, and FCC
commissioners have publicly stated that the current situation must be
changed. In fact, two major sellside firms (Jefferies and First Boston)
have actually published negative views of the prospects for internet
telephony in general and Net2Phone in particular. In sum, IDTC has been a
series of short-lived long distance arbitrage opportunities; its current
businesses are in decline, and its growth engine (internet telephony) is
unlikely to get off the ground.
All statements are the opinion of Mr. P$nk and should not be constued as investment advice. Please note that Mr. P$nk is a fictional deluded internet celebrity (in only His mind) who sit around unshaven in his bathrobe and makes random remarks that only a fool would listen to. The fact that He his advice has coincided with the destruction of such companies as SIR, FP, REXI, TWTI, MRVC, SYQT, CLCX, HITT, EVSI, NCDR and countless others is sheer coincidence. |
