H&Q's Dave Levy on Feb 7: Net2Phone is the leading provider of Internet telephone services to businesses and consumers. The
company offers products and services that allow users to make high-quality, low-cost calls from telephone-to-
telephone and from PC-to-telephone. Most importantly, the company brings live voice communication
to the Web.
Compelling Valuation
Net2Phone shares have been under pressure recently, which we believe is the result of concerns
regarding the end of the stock lockup period (which ended on January 25) for IDT and other
major shareholders. While some insiders have monetized a small portion of their holdings, we do
not believe that management is interested in selling substantial equity at these levels.
Furthermore, we believe that any pressure related to such selling or concerns over insider selling
has presented investors with a buying opportunity. As a result of the recent share price decline,
NTOP shares currently trade at 14x 2001 revenue, compared to 20x for the peer group, which
includes deltathree, iBasis, ITXC Corp., and Mpath. Historically, the stock has traded at a
premium to the group. Given what we believe is a full pipeline of forthcoming distribution deals
as well as Net2Phone's leadership position, we believe that NTOP shares could regain a premium
valuation. Our rating on Net2Phone remains Buy.
Conclusion
Net2Phone's robust financial performance and growing roster of Web partners reflect the
popularity and increasing ubiquity of the Net2Phone service. We believe Net2Phone has locked
up significant Internet real estate that will provide the company with increased minute volume
and additional customers. Additionally, we are encouraged by management's proactive approach
to providing Web-based services like unified messaging to augment minute-based revenue.
Furthermore, Net2Phone, in our opinion, is on the cusp of getting a boost in its usage as the
service goes live with various AOL Web properties (ICQ, Instant Messenger, Netscape, and
CompuServe). We continue to believe that Net2Phone is well positioned to be the de facto
standard for voice-enabling the Internet. |
