magicJack VocalTec Ltd.

CALL : NASDAQ : US$18.86

BUY 
Target: US$24.00 

COMPANY DESCRIPTION:
The company is the inventor of lightweight, VoIP-based
magicJack devices that allow customers to make phone
calls by plugging into the USB port on a computer or into
a power adapter and high-speed Internet source. The
company is headquartered in Netanya, Israel.

All amounts in US$ unless otherwise noted.

 

Telecommunications
MANAGEMENT ROADSHOW INSPIRES
CONFIDENCE – SLIGHTLY ADJUSTED ESTIMATES
Investment recommendation
On the road with the management of CALL as they continue to outline how they are repositioning the company.

Management discussed initiatives enacted to improve
customer care and ease the customer renewal process since last year.
They are also considering a return to the former pricing plan (12
months). Soon we expect to see the launch of a new device with a
revised advertising campaign that could return the company to strong
top-line growth. Over the next five years we continue to expect industry
voice telephony pricing will continue to compress and for the company
to continue to gain market share.
Investment highlights
 Less advertising drives Q1/14 higher EBITDA (EPS) – We now
believe the company spent significantly less on advertising than we
initially expected as we await the product refresh. As a result, Q1/14
profitability will likely be greater than we expected but on lower
revenues. We have adjusted estimates accordingly.
 Product refresh should better integrate App – With the refresh,
which could be launched in weeks, we expect a full refresh of the
App. In fact, the company just unveiled an updated, rebranded
version for Android. The refresh aims to improve integration with
the device, lowering churn and driving higher revenue growth.
 Transition continues, 2014 inflection – It’s increasingly clear the
direct competitor (Vonage) is not significantly impacting the market.
With the product refresh that should come in early May, we believe
it is likely that the company returns to double-digit revenue growth
this year.

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