Morning Report
What About VocalTec?
NetSpeak Dials Into Wall Street Loud & Clear
By Steve Harmon
Senior Investment Analyst
Internet.com
"Where Wall Street Meets The Web"
[June 24, 1997] At a time when Internet telephone software stock maker VocalTec (NASDAQ:VOCLF) trades at what we
think may be 4x to 5x estimated revenue for this year, rival NetSpeak (NASDAQ:NSPK) dialed into Wall Street with an
initial public offering recently for what could be more than 20x.
The number of shares offered were upped by 400K to 2.4 million in the $8.75 per share offering ushered in by
underwriters Josephthal Lyon & Ross and Cruttenden Roth. On June 23 NSPK, closed at $9.50 per share, up 9% from its
debut, leaving observers asking: Who's number is this anyway?
Taking the latest quarter revenue for each firm and multiplying it by four shows that despite VocalTec's stronger revenue
and market position, NetSpeak so far has investor's ear. The numbers on each: For the three months ending March 31,
VOCLF, maker of the well-known Internet Phone application among other telephony over IP offerings, generated $3
million revenue with a net loss of $2.3 million or $0.27 per share loss.
Meanwhile, NetSpeak, which touts its WebPhone application amid a suite of communication software offerings, posted
$904K revenue and $985K loss for first quarter this year. The IPO proceeds are slated for corporate purposes and working
capital. Insiders own 38% of common stock.
NetSpeak Numbers
NetSpeak
NSPK
Valuation estimates
ÿ
Shares offered
2.4
IPO share price May 29, 1997
$ 8.75
Price per share June 23, 1997
$ 9.50
% difference
9%
Shares outstanding
10.55
= Market capitalization
$ 100.24
- pro forma working capital
$ 24.03
= Enterprise value
$ 76.21
ÿ
ÿ
Revenue and Income
ÿ
1996 revenue
$ 0.87
1996 earnings or loss
$ (2.87)
Loss per share (8.2M shares)
$ (0.35)
First-quarter '97 revenue
$ 0.90
First-quarter '97 loss
$ (0.98)
Loss per share (8.2M shares)
$ (0.12)
ÿ
ÿ
Multiples
ÿ
Market capitalization/ run rate revenue
28x
Vs. rival VocalTec estimates
5x
ÿ
ÿ
Note: All figures in millions, except multiples, earnings or loss per share and share prices; ( ) = negative numbers. (c) 1997
Mecklermedia
Founded in 1995, and currently with 59 employees, some of the key differences in NetSpeak's value equation may rest in
its equity alliance with Motorola, which exercised a warrant granted to it in August 1996, paying $2.5 million, or $5.50 per
share, for NSPK. That resulted in Motorola (through an investment by its new enterprise arm) owning 11.6% of NetSpeak.
The obvious benefit of Motorola as ally is access to its global user base of telephony customers and vendors, not to mention
strategic and capital support. Although VocalTec has product agreements with Motorola also.
In addition, with the IPO, ACT Networks agreed to acquire $2 million worth of NetSpeak common stock. NetSpeak will
integrate its products for use in ACT's WAN access products which utilize frame relay systems to integrate voice, data and
facsimile communications. On the competitive front, NetSpeak competes with plenty of challengers, some more established
in the software or gateway telephony space, including Vienna Systems, Lucent, VocalTec, and Dialogic with respect to its
gateway products. Clientside software rivals include VocalTec, Microsoft, and Intel.
Notably, Netscape (NASDAQ:NSCP) offers a Web phone application called Cool Talk. Eventually, the browser suite could
co-opt Internet telephony entirely. Question is: Will the features match what looks like strong business-to-business ones
from NetSpeak?
Outside the industry wrestling match realm, government policy remains a big question mark for all the players in the
Internet telephony space. While we think the technology could take over a large chunk (10% to 15% within five years) of
the "traditional" telephone/communication market--which totals about $100 billion in the U.S.--still debatable is the FCC's
(and international policymakers) future role, if any, in regulating voice over Internet.
Web access costs about $0.65 per day in the U.S. ($19.95/31 days), so you could talk to someone halfway around the
world for that price--all day. That same $0.65 would get you maybe 6.5 minutes long distance time via MCI, Sprint, or
AT&T.
Blip us with an e-mail to stocktalk@iworld.com on what you think about any Internet stock or investment you've seen or
heard about to. Send us your rants, raves or ramblings and they may be included in this column in a special feedback
edition every week. Throughout the trading day be sure to check Internet Stock Report's index of leading Web companies,
the ISDEX, Internet Stock Index, for a roundup of how Internet stocks fare minute to minute. |
