Is MagicJack Really the Next Netflix?

MagicJack VocalTec Ltd. (NASDAQ: CALL) has been surging on Monday, on what appears to be no real news. The driving force is a newsletter plug from fund manager Whitney Tilson. What is so interesting about this pop is that it is for a discount plug to the next Value Investing Congress taking place in Las Vegas from April 3 to 4.

Tilson is calling it perhaps his next Netflix Inc. (NASDAQ: NFLX), which he is up close to 8-times over since then. One of the driving forces is on an ability to get a critical mass of customers, as well as offering huge savings. Tilson’s pitch on MagicJack keeps referring back to Netflix. Some of the characteristics that were shown are as follows:

  • 1) A tainted company with a beaten-down, heavily shorted stock.
  • 2) Great management.
  • 3) Fixable problems.
  • 4) An enormous, global market.
  • 5) Big, lumbering competitors that are resistant to change.
  • 6) A paradigm-shifting technology or way of doing business.
  • 7) A position of market leadership in the new arena.
  • 8) Attractive economic characteristics.
  • 9) A moat around the business.
  • 10) An extraordinary value proposition to customers.

The report is much more detailed than this, but it offers some risk measurements as well. Tilson called MagicJack a small company with a checkered history- that is competing with giants, with some regulatory risks.

Whitney Tilson did outline many of the upsides and risks in much more detail, but we wanted to outline some of the key differences as follows:

  • Market Cap: MagicJack $291.2 million vs Netflix $25.7 billion
  • 2014 Revenue expectations: MagicJack $150 million vs Netflix $5.37 billion
  • Projected 2014 P/E: MagicJack 8.7 vs Netflix 106
  • Implied analyst upside: MagicJack 18% vs Netflix -13.5%
  • Number of analysts following: MagicJack 1 vs Netflix 32

Apparently newsletter promotions can still run stocks. After all, many investors are chasing the bull market returns since 2009 and also of 2013. MagicJack shares were up 14% at $15.70 on over 1.6 million shares in mid-afternoon trading on Monday.