magicJack VocalTec Ltd. Earnings: Will the Stock Keep Slumping?

On Monday, magicJack VocalTec (CALL +0.00%) will release its quarterly report, and investors aren't really certain what to expect from the provider of voice-over-Internet services. To an even greater extent than peers Vonage (VG +0.00%) and 8x8 (EGHT +6.03%), magicJack has demonstrated its long-term promise to investors at the beginning of the year, But lately, investors have questioned the prospects for the industry, as stocks throughout the sector have come under pressure.

For decades, telephone companies counted on constant streams of monthly income that financed the creation of massive wireline networks. Yet with the birth of the Internet, magicJack VocalTec, Vonage, 8x8, and other providers had an opportunity to use Internet-based infrastructure to deliver voice calls, and as bandwidth increased, so too did the ability for those calls to rival wirelines in terms of quality. Given its value proposition, magicJack is attractive to consumers, but can it do better than the more enterprise-focused efforts that Vonage and 8x8 have made? Let's take an early look at what's been happening with magicJack VocalTec over the past quarter and what we're likely to see in its report.

Source: magicJack VocalTec.

Stats on magicJack VocalTec

Source: Yahoo! Finance.

Can magicJack VocalTec earnings keep rising?
Analysts have been a lot more excited about magicJack VocalTec earnings in recent months, boosting their first-quarter estimates by almost half and making more modest increases to full-year 2014 and 2015 projections as well. The stock is up 28% since early February, but it has still lost almost a quarter of its value in just the past month after having made an even more impressive run-up.

Ordinarily, earnings reports are the primary driver for a stock's gains. But in February, magicJack got an even stronger endorsement, as well-known investor Whitney Tilson compared the stock to Netflix, arguing that if it can continue to market its low-cost phone services in a way that differentiates it from Vonage, 8x8, and other similar voice-over-Internet providers, it could see the same exponential growth that helped send the streaming-video giant soaring.

Fourth-quarter results from magicJack VocalTec helped the stock soar even further, as revenue jumped by 23%, calming fears among some shareholders that magicJack's sales growth had hit a ceiling. Net income also came in far better than investors had expected, but the best news came from magicJack's forward guidance, with the company expecting to bring in 10% to 15% more revenue than analysts had projected. With magicJack looking to offer its products in more than 10,000 new retail locations this year, the opportunities for further growth look healthier than ever.

Still, magicJack VocalTec faces plenty of competition. Video-calling services like Skype offer calling at no additional cost beyond an Internet connection, making spending even $30 per year seem somewhat unnecessary. Indeed, despite magicJack's solid revenue numbers, active subscriber counts fell slightly from the previous quarter. An anticipated new product from magicJack could help drive interest again, but magicJack needs to convince users of the value proposition it offers versus similar voice services.

In the magicJack VocalTec earnings report, see if the company starts to address the weaknesses that Whitney Tilson identified in his recommendation, including inconsistent customer service and improved marketing techniques. If magicJack can take the right steps, it could be at the beginning phases of a strong growth spurt that could lift shares higher.

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