sleepydragon Posted July 8, 2014 Share Posted July 8, 2014 Initiated a position in CALL today :) The company is based in Israel. Mktcap is $250mn, with about $60m of cash and no debt. trading at around 7x operating cash flow. Very high short interest. Recent high is $24. now trading at $13. seems to me this company will be bought sooner or later by google/msft like big tech companies? Link to comment Share on other sites More sharing options...
PatientCheetah Posted July 8, 2014 Share Posted July 8, 2014 Initiated a position in CALL today :) The company is based in Israel. Mktcap is $250mn, with about $60m of cash and no debt. trading at around 7x operating cash flow. Very high short interest. Recent high is $24. now trading at $13. seems to me this company will be bought sooner or later by google/msft like big tech companies? anyone reason why? VOIP is common place nowadays and is offered by many no name providers (do a simple Google search). Google has Google Voice and Microsoft has Skype. I did seen many magic jack commercials so I assume that there are some brand equities. Link to comment Share on other sites More sharing options...
valueyoda Posted July 8, 2014 Share Posted July 8, 2014 Cheap relative to near term cash flows and oversold, yes! However, I don't think that it has a sustainable business longer term. I would almost put it in the same category as Outerwall. Outerwall has a core business that will eventually disappear, but near term cash flows remain strong. Link to comment Share on other sites More sharing options...
sleepydragon Posted July 8, 2014 Author Share Posted July 8, 2014 neither google voice nor Skype provide the same service I can get from magic jack. with magic jack, I pay like 30 bucks for one year, and I plug my phone into the ethernet , I can start make and receive calls. very convenient. very cheap. no need to install any software. you go anywhere in the world, you plug in the thing, it will work right away. no need to open your computer, connect to Internet, etc.. google voice is tied up with your own real phone. so if u make or receive calls, you are using up the minutes of ur cell phone. Skype is awful after it's bought by Microsoft. my account was hacked into and someone made international calls to an estern European country with it. and I couldn't get refund from Skype. also, with Skype you use it from your computer (or your smart phone if u get their app),which is less easy to use than magic jack. its plans are also more expensive than magic jack. Link to comment Share on other sites More sharing options...
peter1234 Posted July 8, 2014 Share Posted July 8, 2014 Tilson likes it. Here is his thesis: www.valueinvestingletter.com/pdfs/MagicJack-My-Next-Netflix-Whitney-Tilson-2-7-14.pdf Link to comment Share on other sites More sharing options...
yadayada Posted July 8, 2014 Share Posted July 8, 2014 if you want a dying cash cow in your portfolio look at outerwall. Core business has 300m$ in FCF earning power (capex lower then depreciation from now on) about 70m of that is there to stay (the coin business). ANd they got a new venture that could add another 150-300m$. And you get that with a market cap of 1.2 billion$. And I think redbox is better positioned then this business. I can see redbox around only a bit smaller 6-7 years from now, but I find it hard to see this business still anywhere near as big now. Their edge vs competitors is also not very good. I might prefer Vonage over this one actually. Link to comment Share on other sites More sharing options...
WeiChiLoh Posted September 14, 2014 Share Posted September 14, 2014 Anyone on this? Seems quite attractive at $11.50. Trades at ~2.3x EV/renewal run rate. While churn rate is ticking down. At 3.1% churn rate, it implies that the average customer stays on for over 2 years and 8 months, or 2.7 year. At current multiples, it kind of assumes that churn rate will go up to 3.6% and has no customer growth. Seems like the downside for this is capped. Any thoughts? Link to comment Share on other sites More sharing options...
WeiChiLoh Posted September 14, 2014 Share Posted September 14, 2014 The company also owns 30m in deferred tax assets and 12m in prepaid tax assets, which is always good. Negative NWC and low capital intensity which translate to high FCF. Link to comment Share on other sites More sharing options...
PatientCheetah Posted September 14, 2014 Share Posted September 14, 2014 It's a dying cigar butt. Time is against you. It is cheap but what's the point - it won't compound over time. If fact, its long term stock chart tells us its story very clearly - highly volatile and range bound. Link to comment Share on other sites More sharing options...
WeiChiLoh Posted September 15, 2014 Share Posted September 15, 2014 While it is true that the industry is shrinking, and the product is mediocre, I disagree with you that the company will not be able to compound its gain. the company is cash generative and with that, wont they be able to invest in R&D and customer acquisitions? Wont investing in R&D improves customer growth and churn rate? A double whammy? Link to comment Share on other sites More sharing options...
dolce far niente Posted September 15, 2014 Share Posted September 15, 2014 the company is cash generative and with that, wont they be able to invest in R&D and customer acquisitions? Wont investing in R&D improves customer growth and churn rate? A double whammy? Not necessarily. Nokia, Kodak come to mind. Link to comment Share on other sites More sharing options...
PatientCheetah Posted September 16, 2014 Share Posted September 16, 2014 While it is true that the industry is shrinking, and the product is mediocre, I disagree with you that the company will not be able to compound its gain. the company is cash generative and with that, wont they be able to invest in R&D and customer acquisitions? Wont investing in R&D improves customer growth and churn rate? A double whammy? Can you think of any incremental R&D that will improve customer growth and churn rate? IMO VOIP is a mature industry. For me personally, I make vast majority of my calls from cellphones and PCs for free (e.g. Skype, WeChat, Whatsapp, etc.) Link to comment Share on other sites More sharing options...
WeiChiLoh Posted September 16, 2014 Share Posted September 16, 2014 Hi. Thanks for the reply. From reading product reviews and whatnot, it seems Magicjack's problems are fixable. An example is the fact that the app on the smartphone cant be close and therefore eats battery. Another is the fact that product quality is quite binary. Customer service can be better. These problems look fixable. I am not saying this company could be a ten bagger as what tilson suggests. But, so long as the company is able to reduce churn rate by a couple dozen basis point and monthly has customer acquisition rate of maybe 1% to offset some of the churn, this company seems to have the potential to be a multi-bagger on a DCF basis. The company has massive tax assets, negative working capital and is very capital light after all. Link to comment Share on other sites More sharing options...
sleepydragon Posted September 17, 2014 Author Share Posted September 17, 2014 I am down about 30% on this name but I am still holding it. I use magicJack as my home phone and I love it. There were some negative reviews on amazon about customer services, but I have not experienced any of those problems. For example, there were complaints about there's no way you can disable "auto-renew" from their website. But I found you could do it now. Also, I have not experienced any dropped calls. So I think they fixed quite a lot of problems. The only problem I had is I or someone call my magicJack number, the phone sometimes does not ring. But caller can leave a message and the message get send as an email to me immediately. For only $59/year I am very happy customer. I think there's very little downside, given the cash balance and large deferred revenues. Their only cost is marketing and running the servers. Is it a dying business? I don't think so. I used to use Skype. My Skype was hacked and someone used it to make calls to Russia. Skype is also more expensive if you want to receive calls. There's really no other cheaper alternatives. And if this is a dying business, why microsoft spending so much money to buy Skype? I think magicjack will be bought eventually by someone like ATT. It's a threat to their phone service business. Link to comment Share on other sites More sharing options...
yadayada Posted September 17, 2014 Share Posted September 17, 2014 but soon there will be wireless internet everywhere. And then you just install skype on your smart phone and call for free? Or if you want to call long distance you probably both have a pc with internet? I assume you use it for long distance calls? Link to comment Share on other sites More sharing options...
sleepydragon Posted September 17, 2014 Author Share Posted September 17, 2014 you can also install magicjack's app on iPhone and make calls.it's also free. for Skype, you need to pay to get a number for people to call too. and it cost more than MagicJack. if wireless Internet is everywhere, correct you can make app to app calls for free. but both side has to be running the apps (unless you use MagicJack which package the software into the hardware, and MagicJack to MagicJack calls are already free), and it will be a very long time before that happens. Link to comment Share on other sites More sharing options...
WeiChiLoh Posted September 17, 2014 Share Posted September 17, 2014 I think the right question to ask is, what is a reasonable bear case and will the company be able to milk enough of its FCF to justify current valuation? Link to comment Share on other sites More sharing options...
smd123 Posted December 14, 2014 Share Posted December 14, 2014 It is trading at ~$7-8 now. $4 per share is cash. Market cap: 137.31M Cash: 78.22M EV: 61.38M Ebitda: 26.20M From their q3 earnings call (http://seekingalpha.com/article/2667435-magicjack-vocaltecs-call-ceo-gerald-vento-on-q3-2014-results-earnings-call-transcript), it seems their revenue was depressed due to brand refresh with new devices being rolled out, whose sales will show up in next quarter earnings. Also, they are expanding in Mexico, in partnership with Telefonica. How do you weigh the risk/reward trade-off here? Link to comment Share on other sites More sharing options...
Picasso Posted December 15, 2014 Share Posted December 15, 2014 I would attribute a lot of the weakness to the fact that Tilson owns it. That said it looks pretty cheap here and worth a closer look. Link to comment Share on other sites More sharing options...
WeiChiLoh Posted December 15, 2014 Share Posted December 15, 2014 I wont buy this company largely because 1) It is is NWC negative. While many people like it, in the case for a declining business, negative NWC actually means that when the business starts declining, NWC actually goes up, puting further pressure on cash flow. That $4 in cash can disappear soon. 2) In order for the company to be worth its current market capitalization, churn rate has to equal add rate. Chrun rate now is 3.1% while add rate is 2%. So i guess that is the data point I am looking at. If add rate exceeds churn rate significantly, then I will start getting interested. I would attribute a lot of the weakness to the fact that Tilson owns it. That said it looks pretty cheap here and worth a closer look. Link to comment Share on other sites More sharing options...
WeiChiLoh Posted December 15, 2014 Share Posted December 15, 2014 I would get more excited at $5.50 though Link to comment Share on other sites More sharing options...
WeiChiLoh Posted December 15, 2014 Share Posted December 15, 2014 Based on my model, every net 1% add adds $1.20 to the value of the business. Soooo...unless this company is truly revolutionary, which from my experiences, it is not, it would make for a hard buy. Link to comment Share on other sites More sharing options...
smd123 Posted December 15, 2014 Share Posted December 15, 2014 1) It is is NWC negative. While many people like it, in the case for a declining business, negative NWC actually means that when the business starts declining, NWC actually goes up, puting further pressure on cash flow. That $4 in cash can disappear soon. How did you calculate NWC for the business? The company ended Sep '14 with 75m in cash, vs. 46m in Sep '13. Link to comment Share on other sites More sharing options...
WeiChiLoh Posted December 15, 2014 Share Posted December 15, 2014 1) It is is NWC negative. While many people like it, in the case for a declining business, negative NWC actually means that when the business starts declining, NWC actually goes up, puting further pressure on cash flow. That $4 in cash can disappear soon. How did you calculate NWC for the business? The company ended Sep '14 with 75m in cash, vs. 46m in Sep '13. My assumption is cash is non-operating. Link to comment Share on other sites More sharing options...
WeiChiLoh Posted December 15, 2014 Share Posted December 15, 2014 Assuming no net add (Churn rate = Add rate), CALL is worth $100m, sounds about right to me. I used a 15% discount rate and an average 5 years sales to capital ratio. Link to comment Share on other sites More sharing options...
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