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Is CALL Stock the Next NFLX?

Whitney Tilson's makes a bold claim, but a fair one

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Last June, the company introduced a new version of the MagicJack Plus with enhanced voice, power and memory features. The new product is thought to be much better than the previous version, and initial sales numbers would seem to support this thesis.

In CALL’s Q3 conference call CEO Gerry Vento indicated that its “… marketing and packaging has become a bit stale. We are undergoing change to both of those areas and our partners are encouraged by our new direction.” In advance of introducing its new packaging and marketing initiatives, it has pulled back its quarterly ad spend because the dollars are better spent once it has a fresh face to go along with the fresh product. Think of this as reloading.

Netflix did a little reloading of its own in 2011 when it announced that it was splitting its two services into two separate operations with the DVD division being rebranded as Qwikster with a totally separate pricing scheme. NFLX stock took a beating, which eventually forced it to reverse its decision. Since that reversal, NFLX stock is up almost 300%, proving mistakes aren’t always fatal.

Why Tilson Likes CALL Stock

I see five simple reasons why he’s excited.

1. CALL has a quality product that will fly off retailer shelves once it brings a coordinated marketing effort and refreshed packaging to the game. In November, it was in about 9,000 stores. It plans to be in 30,000 stores very soon.

2. Its gross margins continue to improve up 600 basis points in Q3. Once it delivers scale from its marketing effort the net result will be to push more dollars to the bottom line.

3. Approximately 49% of its active subscribers use the original Magic Jack created in 2007. With superior sound quality, the new Magic Jack Plus will be purchased by many of its already satisfied customers. Not to mention the acceptance of VOIP is much higher today than it was back in 2007.

4. CALL activated 273,534 Magic Jack subscribers in Q3, an increase of 21% over the second quarter. It now has 3.3 million active Magic Jack subscribers. In addition, it increased access rights renewal revenues (the right to access its servers beyond the original term) in the third quarter by 34%. The healthy state of both these numbers is a key to its future success.

5. With no debt, $34 million in cash and investments, and operating cash flows expected to increase substantially in the next few quarters, its long-term future has never been brighter.

Bottom Line on CALL Stock

Whitney Tilson, like every investor, has good and bad calls. Comparing CALL to NFLX might seem like a stretch but the two companies’ products and services definitely provide significant value to consumers.

For this reason I think his investment thesis is right on the money. CALL stock is worth owning and could very well be the next NFLX. Now if they could only drop the Vocaltec from its name we’d be off to the races.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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