Net2Phone Activity

Om Malik puts forth some thoughts and analysis on Net2Phone, one of my favourite VoIP players. Net2Phone is a fascinating company, having been formed almost a decade ago and having undergone several major transitions in its core product offering. The company has been flexible enough to follow the technology trends and nimble enough to position itself well for the next few years of VoIP services. Granted, the company has some legacy long-haul VoIP clients to service, but those in fact are an incredible asset -- an existing relationship through which to upsell higher value VoIP products.
Net2Phone Global Services delivers VoIP telephone services to businesses and consumers directly and through its global distribution network of over 500 resellers in over 130 countries, capitalizing on the growth, quality, flexibility and cost advantages of VoIP technologies.
In reference to Om's analysis and Andy Abramson's post on the 3.1 % stake AOL Time Warner has in Net2Phone, I think this is fascinating. Almost 90% of Net2Phone's revenues come from outside the US, in markets in which Net2Phone is the leading VoIP brand for both small businesses & consumers. Their US efforts have been slow to materialize and lower profile than Vonage's, so I think this investment & potential partnership makes a ton of sense. AOLTW can gain international exposure in a new market and N2P gets a leading US MSO partner. Furthermore, mostly for reasons of tenure in the space, much of the Net2Phone technology is very advanced, proprietary & comprehensive, whereas many recent VoIP service providers have simply leveraged third party & open source infrastructure.

With over $100M in accessible cash, less than $35M in long-term debt & payables, the company has a lot of dry powder to fund marketing & sales. And, with the institutional backing the company has (Liberty owns about 40% and Howard Jonas owns about 40% of the outstanding shares; Institutions & Funds own a large percentage as well, the rest going to management and individuals) there should be no shortage of capital if need be.

Plus, from what I've gathered, NEA most recently invested in Vonage (a company ostensibly far from profitability & with significantly less in-house technology than Net2Phone) at about a $350M pre-money, equivalent to revenue run rate enterprise value multiple of 3.5x. The same Net2Phone multiple is less than 2.0x. Plus, Net2Phone's revenues are diversified across multiple markets, currencies, & regulatory environments. All things equal (which they're not), this is a compelling opportunity!

Disclosure & Liability: Neither the information herein nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities. Further, I am in no way affiliated to Net2Phone, nor am I a registered investment advisor. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this blog and should understand that statements regarding future prospects may not be realized. Caveat Emptor.
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