IDT Corp Stock.: A Rare Opportunity To Buy IDT Cheap (NYSE:IDT)

Businessman using mobile smartphone and connecting cloud computing service with icon customer network connection. Cloud device online storage. Cloud technology internet networking concept.

ipopba/iStock via Getty Images

The following segment was excerpted from this fund letter.


IDT Corp. (NYSE:IDT)

In my Q4 2021 letter, I outlined in detail our position in IDT Corp. and the merits behind our investment. Frustratingly since the publication of that letter, IDT shares have declined nearly 50% along with the broader market selloff in communication services, UCaaS businesses and retail related stocks. In addition, the presumption that IDT growth subsidiaries are dependent on positive capital markets activity (not entirely false) also contributed to the decline. So why would we want to own IDT?

In keeping with the theme of this letter, IDT’s three growth businesses have all reported very strong results during the past two quarters with no signs of slowing down. Leading the charge is National Retail Solutions (NRS), still growing revenues 100% YoY as of the company’s Q3 2022 report, followed closely by IDT’s UCaaS business Net2Phone, growing revenues 42% from the same period last year. Factoring in each segment’s success, growth runway and unit economics, I don’t believe a $500 million enterprise value is the correct price for IDT shares, especially given one business segment on its own contributes $90 million in EBITDA.

With the exception of IDT’s Traditional Communications segment, none of their three growth businesses were COVID beneficiaries, and continue to provide much needed services with high value propositions and little chance of disruption. I’d urge you to go back and take a look at the reported results for Boss Money, Net2Phone and NRS during COVID, which would help highlight the dependence on these businesses by IDT’s customer base.

Talks of interest rates, economic downturns and inflationary concerns have been wholly absent from management commentary as Boss Money’s customer base depends on their services and the sticky, recurring revenue B2B offerings of Net2phone and NRS have held up extremely well. While critics will point to the loss of a near-term catalyst for the shares as the Net2phone spin-off has been delayed, keeping Net2Phone in-house until a clearer path to monetization at fair value emerges can hardly be considered a worst-case scenario.

Net2phone can continue to grow inside of IDT while reinvesting cash flows to strengthen the business and expand the product offering. This was highlighted during Q2 2022 when IDT acquired Integra, a contact center as a service (CCaaS) business that will be immediately accretive to both the top and bottom lines.

For all its positives, IDT stock has a number of things working against it. There are multiple business lines, a non-promotional management team, depressed capital markets activity where previously near-term catalysts have been put on pause, and a pending lawsuit from a prior business deal that has yet to be resolved. Strong capital allocation could help bridge the gap here, and I’ve been very vocal in my many constructive conversations with management about pursuing share repurchases more aggressively in lieu of tax-free spinoffs.

I think they hear me (and others) but I’m not sure they’re listening yet. Despite this, the opportunity to own a business like NRS at today’s price does not come around often, and I believe we will be rewarded over time.


Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Be the first to comment

Leave a Reply

Your email address will not be published.


*