EGHT in Barron's
Timid Turkey: The Market Meanders Along
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One of the latest crazes to capture investor imagination has been voice-over-Internet protocol, or VoIP, a method of cheaply conveying phone calls by dispersing and then reassembling voice signals. No one doubts this is a viable and growing technology. The question is which companies will genuinely profit from it, and how to value the stocks in the group.
8x8 is a small competitor in this area. It offers a service called Packet8, which lets high-speed Internet subscribers buy a phone adapter and get unlimited calling in North America for $19.99 a month. It's very similar to other offers from more-established companies. And the barriers to entry are rather small -- little more than some networking gear, a bulk purchase of wholesale broadband minutes and a Website.
Yet last Wednesday, 8x8's entire 25 million-share float virtually turned over as the stock jumped almost 80% to 6.77. The stock was up another 76 cents to 7.52 Friday on similar volume, as plenty of hobbyist traders must've taken the day after Thanksgiving off to chase mini-cap momentum plays. Newsletter writer Tobin Smith of Changewave.com also pushed the stock.
The true diluted share count is around 42 million, thanks in part to a recent dilutive private placement that gave some institutions the right to sell the stock below $4.
The effective market value of the company -- which had $4 million in sales during the first six months of the fiscal year, mostly from its unprofitable electronics hardware unit -- now exceeds $300 million.
Part of the enthusiasm for the VoIP story was drummed up by upbeat, televised comments from the CEO of Net2Phone, a much bigger and better-capitalized VoIP provider. More attention came from a Merrill Lynch research report highlighting the move by the Baby Bells into this business.
That's some daunting competition for a company such as 8x8, which has at least three better-known VoIP players to deal with in addition to the Bells.
Also note: As the stock was surging last week and all the millions of shares swirled about, a small number of those shares -- just over 100,000 -- were sold by 8x8's chief financial officer and its vice president for development.
The chief financial officer, James Sullivan, exercised options to buy 62,195 shares at under a dollar each, and sold them all at an average of 5.07. According to Dow Jones' Federal Filings service, that brings Sullivan's holdings back to zero. |
