MagicJack Rings Up Some Brief Gains

 | Mar 16, 2016 | 1:00 PM EDT
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MagicJack VocalTec (CALL), a company best known for those TV commercials touting its "MagicJack" plug-in phone-call product, has had interesting two sessions -- rallying 10.3% yesterday but plunging some 16% so far today.

The company, whose device lets consumers make virtually free phone calls using Voice Over Internet Protocol (or "VoIP"), saw its stock soar Tuesday ahead of decent earnings numbers and word of a key acquisition.

CALL reported 38 cents of fourth-quarter earning per share after the closing bell, beating analysts' consensus 30-cent estimates. Quarterly revenues totaled $24.6 million, or just a shade below the $25 million consensus forecast. (Of course, it's worth noting that MagicJack doesn't garner much coverage, so yesterday's "consensus estimates" only involved two analysts.)

MagicJack also reported $24.3 million in free cash flow (about $1.50 per share) for 2015 as a whole, which put its price-to-free-cash-flow ratio below 6x. The firm -- which has historically held relatively large amounts of cash -- ended the quarter with $78.6 million in the bank, or about $5 per share.

That number will change given the acquisition announced yesterday, but would have been even higher if CALL hadn't repurchased some 608,000 shares of its stock at an $10.57 price during the fourth quarter.

For 2015 as a whole, MagicJack repurchased 2.3 million shares at an average $8.59 cost. CALL has actively pursued stock repurchases over the years, reducing its shares outstanding by about a third since 2011.

But the biggest news of the day was MagicJack's announcement of plans to buy privately held Broadsmart for $38 million in cash and $2 million in stock. (The deal also calls for an additional $2 million earn-out if Broadsmart rings up $15.6 million in 2016 revenues.)

Broadsmart is a so-called "UCaaS" company, meaning it provides "Unified Communication as a Service." That means the firm offers phone and other communications services to medium- and large-sized businesses, so the merger will give MagicJack access to the key "VoIP for Business" market.

Broadsmart is a highly profitable company. While it remains to be seen whether buying it will help MagicJack successfully enter the VoIP for Business market, CALL appears to have found a solid partner in Broadsmart.

But not surprisingly, that also means that MagicJack is ponying up for the acquisition. CALL is paying 3.2x Broadsmart's 2015 revenue, as well as 9.1x EBITDA. Still, MagicJack will have no debt and about $40 million in cash (or roughly $2.50 per share) following the deal's closure.

But despite yesterday's short-lived rally, Wall Street hasn't really liked CALL in recent years. The stock peaked at about $26.50 a share in 2012, but eventually fell to less than $7 at various points in 2015.

Shares rallied to close yesterday at $8.66, but were back down to around $7.30 at last check today.

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