eMailbag Monday:Net2Phone, WordCruncher, [email protected]

First reader up writes:

“Steve, what’s going on with IDT Corp.? Is it
spinning off its Net2Phonedivision?”


Reply: We think there’s two ways of viewing IDTC, one as an integrated
communications company and the other as an integrated communications company
that de-emphasizes an important part of being integrated: ISP access. First the
good news: Net2Phone revenue grew 389% to$11.5 million in 1998 vs. 1997.

The
bad news (in our view): access revenue dropped 39% to $20 million 1998 vs. 1997
as IDT shifted more out of access. We think access could be valuable to feed
other service types IDT offers, so a softening by IDT may make sense for
marketing budgets but not integrated services.

Total revenue was $335.4
million for fiscal 1998, the lion’s share coming from discounted long-distance
and prepaid phone card sales.

IDT also plans on launching a
Internet-telephony-based e-tail search engine called EZSurf.com. It allows (or
plans to) consumers to e-mail, talk via the Internet with customer service
representatives, or have them call back.

IDTC shares have hovered in the
$9.50 to $40.25 range the past 52 weeks and closed January 22 at $12. Market
cap was $278 million.

Put in context of the above we think spinning off
Net2Phone may free up some value in that division. We especially like the
customer-service oriented nature of Usurp but remain skeptical of its
acceptance until launched, up and running and being used by enough consumers to
make it successful.

On the risk side we expect everyone to be moving into
these services, including Cisco, Lucent, IBM, Microsoft, AT&T, AOL, etc. IDT’s
challenge is to be the vendor of choice for them.


Crunch

“What if anything have you heard about WordCruncher? I
understand that it is to be a new search engine, is this correct.? What is your
opinion.”


Reply: WordCruncher (OTC BB:WCTI) claims to have a better way to search.
We tried its demo (which was limited) and can see how it can be used for
certain searches to bring out context. WordCruncher says it will debut its
technology early 1999. We are reminded, however, of the old ForeFront Group,
which had powerful multi-search and sort software for performing advanced
searching. And the big search sites, including NorthernLight (which many
probably don’t know about) are always working on new ways of searching. How
protectable is any one way of doing it?


Banking On It

“What do you think about [email protected], the largest Internet
Bank on earth with great growth and possibilities? In my opinion, shares of
[email protected] arereally cheap ( p/e-ratio for 99 is about forty). Revenues and the
number of users (about 16000) are climbing really fast. [email protected], strong buy
?!?”


Reply: We don’t give buy, sell or hold recommendations. What you do with
your hard-earned money is up to you. On [email protected] (NASDAQ:NTBK), a holding
company for Atlanta Internet Bank, we believe traditional banks have or are
moving rapidly to shift customer account access to the Web. [email protected]’s 15,000
accounts pale are impressive but in context remain small vs. the established
banks. Highlight: net income for 9 months to September was $3.7 million.
December 23 NTBK announced it plans a follow-on stock offer, 2.37 million
shares through Bear Stearns, to boost its marketing budget.


With the right marketing and incentive we think [email protected] could get more exposure
yet we still wonder despite more awareness where the value add is between it
and the online offering from banks.


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