July 11 (Bloomberg) -- MagicJack Vocaltec Ltd. posted its worst weekly drop in two months, wiping out most of this year’s rally amid delays in its shift to the same business model of free mobile communication services offered by WhatsApp Inc.
MagicJack, whose main product is a device that connects to a computer or router to enable voice calls over the Internet, has trimmed its 2014 gain to 15 percent after a 78 percent rally in the first quarter. Shares have tumbled 8.7 percent this week to $13.69, the third-worst performance on the Bloomberg Israel-US Index which fell 1.9 percent. The stock gained 3.6 percent today.
Chief Executive Officer Gerald Vento is revamping MagicJack’s smartphone application to remake the company as a provider of cheap mobile number and voice services in the model of WhatsApp, which Facebook Inc. bought for $19 billion in February. The company’s new product offering, the MagicJackGO, failed to reach the shelves of all its retail partners this week, prompting Oppenheimer & Co. to cut its earnings forecast for 2014 to 2016.
“Management is expected to deliver on certain initiatives and is coming up short of expectations,” Yousef Abbasi, a market strategist at JonesTrading Institutional Services LLC in New York, said in an e-mail. “We’ve seen a slower than expected launch for their MagicJackGo product, and the mobile application is still not as robust as some had expected.”
The MagicJackGO device is on shelves at Wal-Mart Stores Inc. and RadioShack Corp., and will be available at Best Buy Co. by the end of this month, Chief Operating Officer Tim McDonald said in a phone interview from New York today.
“Positioning it as much around mobile as it is around fixed-line creates a very different product offer to the marketplace,” McDonald said. “We believe, and our retail partners believe, that there’s incremental demand for MagicJackGO.”
Short interest, or stock borrowed by investors to bet on declines, climbed to 24 percent of shares outstanding on July 10, close to a record reached last month, according to data compiled by Bloomberg and Markit, a London-based provider of financial information.
Oppenheimer analyst Tim Horan lowered his 2014 forecast for MagicJack’s diluted earnings per share to $1.27, from $1.38, according to a July 8 research note. He reiterated his market perform rating of the stock. Analysts are on average estimating full-year profit of $1.45 per share, Bloomberg show.
“The stock will likely remain highly volatile,” Horan, who is based in New York, wrote. “There does remain a lot of execution/timing risk, although this should be resolved by year-end.”
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