MagicJack VocalTec Ltd. (CALL), a pioneer of phone call-over-Internet technology, climbed the most among Israeli stocks traded in the U.S. last week on prospects demand for cheaper calls will spur the company to report its first profit this year.
Netanya, Israel-based MagicJack added 9.2 percent in U.S. trading last week to $24, bringing its advance for the year to 76 percent, the best performance of the 25 stocks on the Bloomberg Israel-US 25 Index (ISRA25BN) of the most-traded Israel companies in New York. The measure added 0.8 percent on March 9 to 85.41, trimming its decline in the week to 0.3 percent.
MagicJack, which reports audited fourth-quarter results this week, will turn a first profit of as much as $27.8 million in 2012, according to analyst estimates collected by Bloomberg. With the U.S. economy growing less than 2 percent in the past three quarters, consumers are cutting costs by using cheaper Internet calling offered by MagicJack and Microsoft Corp.’s Skype Technologies SA, according to Eagle Global Advisors LLC.
“People, especially in a tough economic environment, look for ways to reduce their expenditures, and companies like MagicJack and Skype are those types of companies that attract users due to their low costs,” said John Gualy, a partner at Eagle Global Advisors in Houston and portfolio manager for the Timothy Plan Israel Common Values Fund (TPAIX). “They’re going from losing money last year to starting to generate good cash flow this year.”
Gualy’s fund owned 11,500 shares in MagicJack at the end of 2011. He said the Israel Common Values Fund manages around $9 million.
CEO Says Undervalued
MagicJack shares still have room to climb and are undervalued given the company’s potential to grow revenue by as much as 30 percent this year, Chief Executive Officer Dan Borislow said in an interview on March 9. He said the company’s MagicJack Plus device, which lets users make and receive calls over the Internet without turning on a computer, will help attract more customers.
“In the United States, people are used to using telephones, and unlike Skype we enable the use of a telephone,” he said by phone from West Palm Beach, Florida. “Really anyone who has high speed Internet access, we have something to sell or provide those people.”
The company, whose TV ads featured U.S. women’s soccer player and Olympic gold medalist Abby Wambach, will file audited 2011 results on March 14 or 15, Borislow said. The net loss in the fourth quarter of 2011 is expected to be 9 cents a share on sales of $29.6 million, the company said in a Feb. 16 statement. The figures exclude one-time gains and charges as well as other adjustments.
“We don’t expect anything different at all from what we’ve already put out,” Borislow said.
Revenue in the first quarter of 2012 may exceed $37 million and earnings may be greater than 26 cents per share, the company said in a Feb. 28 statement.
Short sellers are placing record wagers against MagicJack, betting it will slump after posting the biggest gains among Israeli companies traded in New York this year.
So-called short interest in the company had risen to 2.9 percent of the shares outstanding as of March 8, a more than five-fold increase over the past three months, according to data compiled by Data Explorers, a New York-based research firm.
Short interest in Vonage Holdings Corp. (VG), the biggest U.S. provider of phone services over the Internet, is 2.6 percent, Data Explorers said. The shares have fallen 11 percent this year.
As consumers get rid of landline phones to reduce their bills, they may use mobile phones or services such as Skype that don’t require extra hardware, Irene Berlinksy, a senior analyst at research firm IDC said by phone from Philadelphia.
“Some people see them as a landline replacement,” she said. “Other people, when they give up a home phone, they don’t see a need for any kind of landline-type service. They just rely on their wireless phone alone and in that case they don’t need MagicJack.”
The Bloomberg Israel-US 25 index dropped 0.3 percent last week. SodaStream International Ltd. (SODA), the Israeli manufacturer of homemade soda machines, plunged 15 percent to $34.56, the biggest weekly loss since December.
Investors are concerned the company will face rising competition after Primo Water Corp. said it will introduce new soft-drink machines at an industry show in Chicago, said Jim Chartier, an analyst at Monness Crespi Hardt & Co. The announcement by Winston-Salem, North Carolina-based Primo adds to concern SodaStream’s growth may slow after the company said global soda maker unit sales rose 8 percent in the fourth quarter after surging 60 percent in the third.
The Nasdaq Composite Index (CCMP) advanced 0.4 percent last week, extending its quarterly gain to 15 percent, the most since the three months ended Sept. 30, 2009.
Israel, whose population of 7.8 million is similar in size to Switzerland’s, has about 60 companies traded on the Nasdaq, the most of any country outside the U.S. after China. The nation is also home to more startup companies per capita than the U.S.
Alon Holdings Blue Square-Israel Ltd. (BSI), Israel’s second largest food retailer, fell 7.9 percent to $3.28 last week. Shufersal Ltd. (SAE), the country’s largest supermarket chain, dropped to the lowest level since June 2009 after reporting that same- store sales declined 4.1 percent in the fourth quarter, amid protests against the cost of food that have curbed companies’ ability to raise prices.
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