Novice Investing - Calling into IDT

Date: Friday 29th 2008f August 2008 09:10:00 PM

Calling into IDT - 04/25/2007

By: Novice Investing Staff

IDT Corporation (IDT) is in the business of providing telecommunication services worldwide. While the company operates four segments of business; IDT telecom, IDT Capital, IDT Solutions and Voice over IP, main business still comes from the telecommunication business. As such, it is intriguing to discover that IDT hoards roughly $ 650 Million in positive net cash while market capitalization is a mere $ 933 Million. Therefore, cash made up about 70% of market capitalization. Getting into IDT's annual report might provide an idea whether IDT is a strong investment candidate or not. Let us go into each of IDT's business segment.

With the above strong point, strangely IDT had been reporting net losses for each of the past five years. If there is no chance for IDT to turn a profit, then we should seek elsewhere for investment bargain. With that being said, let us go into each of IDT's business segment and analyze profit potential for each.

IDT Telecom
This is IDT's lifeline, representing 88.1% of total revenue. Therefore, we will talk more about this segment. IDT telecom is in the business of selling prepaid and rechargeable calling cards as well as consumer local, long distance and mobile phone service. It offers its service in both the retail and wholesale customers. IDT's prepaid calling card is sold primarily to ethnic immigrant communities around the world. This is a niche that other companies missed. While calling card is a low margin business in general, targeting niche customers will enable IDT to avoid price war with bigger telecom companies. You should expect low growing business albeit with decent cash flow generation from this segment. As calling card is becoming commoditized, price is the primary driver for purchasing IDT's calling card. However, as little investment is required to maintain the business, you would expect this business to be a cash cow.

IDT Capital
This segment basically grows and operate IDT's newer business. An example of today's IDT capital is IDT energy, ethnic grocery brand and IDT Local media unit. You should expect some losses in this segment as basically, IDT is trying out new ventures in this segment.

IDT Solutions
IDT Solutions merely a holding company that license fixed wireless spectrum in the United States. With revenue of $ 3.6 Million, we are not sure why IDT Solutions is not merged into IDT Capital.

Voice Over IP

This segment exists primarily as a result of reacquisition of Net2Phone into IDT. Originally, IDT sold this division for $ 1.1 Billion and just recently IDT bought back Net2Phone for $ 97.1 Million. Nice catch! For 2006, Voice over IP produce $ 94.2 Million of revenue or 4.2% of total revenue. While this segment is currently experiencing loss, in the future, this looks like big revenue driver for IDT as telecommunication cost plunged.

Going forward, it is hard to get excited about the prospect of IDT as all of its business segment is reporting losses. IDT looks more like an investment vehicle rather than a profit-producing company. It had reported loss for five consecutive years and hold a substantial amount of cash on its balance sheet, probably aiming for acquisitions in the near future. Thus, you must treat IDT as an asset play as well.

END

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Jo-Ann Stores Inc. (JAS) or any other securities.

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