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Net2Phone: Calling on Investors

Written By

Dec 21, 1999

Net2Phone (NTOP)
was one of 1999’s hottest IPOs, driven by the excitement of the
convergence of the Net and telephony. The stock reached a high
$92-5/8. However, as of late, the stock has been falling, now
selling for $55-3/4.

At these levels, the company looks attractive. Net2Phone is a spin-off
from a telecom company called IDT (IDTC)
.

Interestingly enough, there is a wide discrepancy in market capitalizations. IDT has a $767 million
market capitalization while Net2Phone has a $2.9 billion market
capitalization. However, since Net2Phone is a pure play, there should be
more action with this stock compared to IDT.

Net2Phone develops technology that allows low-cost telephone
calls using the Net. The company recently launched its new
version — called Net2Phone V.10. Differences? The voice quality is much
better, and the company now offers PC-to-PC calling (so long as each
computer user has multimedia PCs). There is voicemail, as well as a
PC-to-Fax solution.

The company has been showing progress. In its last quarter,
the company posted a net loss of $5.4 million
(11 cents a share), compared to a net loss of $1.2 million or 4 cents a
share
a year ago. Analysts had expected a loss of 16 cents a share.

Revenues surged from $5.7 million to $13.1 million. This is
the result of a substantial increase in paying customers, which increased
20 percent over the past quarter to 392,000.

About 65 percent are from outside the US. The calling volume
went from 34.6 million minutes to 85.3 million minutes, and the churn-rate
was about five to eight percent per month..

The growth rates should continue to show strength. In early
December, Net2Phone signed a pivotal deal with AOL. For three years,
Net2Phone will be the technology for Instant Messenger users to place and
receive calls. There will even be a branded calling card. The AOL Instant
Messenger has 37 million users.

Currently, Net2Phone has a strong suite of technologies, which have been
widely adopted. Making calls over the Net infrastructure should be a
booming business. So far, Net2Phone is a leader and this will build,
making the current stock price an opportunity.

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