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TOP CONTRIBUTORS

IDT Overview

Business Overview

IDT is a multinational holding company that was founded by Howard Jonas in 1990. The company is headquartered in Newark, New Jersey and occupies a building that is approximately 500,000 square feet. In addition to IDT's headquarters in Newark the company occupies space in other areas of New Jersey, California, Washington D.C., and other locations located in metropolitan areas that are primarly used to house telecommunications equipment.[1]

IDT originated as International Discount Telecommunications and provided call re-organization services based out of New York. In 1993 the company began reselling the long distance services of other carriers, in 1995 the company was reincorporated in Delaware and became known as IDT. Since then the company has continued to compete in the international long distance call space, selling customers access to favorable international telephone rates that have been received as a result of high call volumes through a large network of long distance carriers.[1]

IDT operates primarily in the telecommunications and energy sectors providing services to household consumers as well as small businesses. IDT has four primary segments Telecom Platform Services, Consumer Phone Services, IDT Energy, and Genie Oil & Gas. These four segments make up IDT's two main divisions, IDT Telecom and IDT Energy.[1]

Current Capital Structure

IDT's Capital Structure
IDT's Capital Structure[2]

IDT has a very conservative capital structure comprised of 25.76% Debt and 74.23% Equity. When comparing IDT to other companies in the diversified telecommunications sector IDT can be seen as being among one of the most conservative companies in terms of Its Debt to Equity ratio.[2]

Simplification Of Structure

On November, 5th 2010 IDT launched an offer to exchange one share of its class B Common Stock for each share of Common Stock. This offer helps to simplify IDT’S capital structure by consolidating IDT’s two classes of shares, IDT class B and IDT common, into all IDT common. More recently on April, 27th 2011, IDT filed a Form 15. with the Securities and Exchange Commission to complete the share exchange program and finalize the consolidation of the two classes of shares.[2]

Key Drivers for 2011

IDT's key drivers for 2011 will include continued expansion of it's wholesale carrier services business as well as continued expansion and revenue generation within the international market.[1]

IDT's wholesale carrier services division plans to expand it's relationships with mobile network providers. By doing this IDT helps to hedge out some of the risk associated with their primarily land line and prepaid card divisions. This is in keeping with IDT's belief that voice calling volumes will continue to shift from landline to mobile networks.[1]

In 2010 IDT's international operations did approximately $350 million in revenue through mostly prepaid products and land line services. Approximatly 90% of that revenue came from Europe, while only 4% and 6% came from Asia and Latin America, respective. This is clearly an area where IDT can continue to expand and become more profitable as the domestic demand for prepaid products and land line services continues to decline.[1]

International Operations

IDT's International Revenue Break Down
IDT's International Revenue Break Down[1]

IDT does business globally in Asia, Europe, The Middle East, and Latin America. The vast majority of international exposure is provided by IDT's telecom segment however, through the 89% interest in Israel Energy Initiatives IDT gains exposure to The Middle East.[1]

IDT's major international operations are focused in Europe, Asia, and Latin America. IDT derives 90% of international revenue from it's European operations. This is done by providing over 600 different types of prepaid products to the region in addition to providing wholesale carrier services. IDT also sells prepaid products in Asia. Within Asia IDT is one of the top providers of prepaid products to the Filipino and Indonesian regions. Finally, IDT provides both prepaid products and post-paid phone services in Latin America. IDT's continued expansion in to the international market will clearly help to make them more profitable in the future with domestic demand being cut every year.[1]

Business Segments and Product Portfolio

Business Segments

IDT's 2010 Revenue Broken Down By Segment
IDT's 2010 Revenue Broken Down By Segment[1]

IDT operates mainly as a telecommunications company with a small part of revenue derived from it's energy segment, as shown by the graph at the left. IDT's largest segment of operation is telecommunications. IDT's telecommunications segment is known as IDT Telecom. IDT Telecom provides telecom platform services and customer phone service. Within these two services IDT provides various telecommunications services including prepaid and rechargeable calling cards, voice over Internet protocol (VOIP) communications services, local and long distance services, as well as wholesale carrier services. IDT’s energy segment known as IDT Energy is comprised of IDT Energy and Genie Oil & Gas. This segment of IDT resells electricity and natural gas to residential homes and small business consumers within New York, New Jersey, and Pennsylvania. Outside of the New York metropolitan area Genie Oil & Gas manages a 50% interest in American Shale Oil and an 89% interest in Israel Energy Initiatives. In addition to these two major segments IDT also holds assets including real estate and other small initiatives and operations.[1]

Product Portfolio

Telecommunications Portfolio

IDT's telecommunications portfolio consists the Telecom Platform Services division, which provides various telecommunications services including prepaid and rechargeable calling cards, VoIP communications services, and wholesale carrier services. The telecommunications portfolio also consists of The Consumer Phone Services division, which provides customers with local and long distance services. [1]

Energy Portfolio

The IDT Energy portfolio consists of the company’s energy services company, or ESCO, which resells electricity and natural gas to residential and small business customers in New York State, New Jersey and Pennsylvania. The Energy portfolio also consists of the Genie Oil & Gas division which breaks down into, American Shale Oil the holder and manager of IDT's 50% interest in a shale oil initiative in Colorado, and IDT’s 89% interest in Israel Energy Initiatives a shale oil initiative in Israel.[1]

Other Holdings

IDT's other holdings include Zedge, a worldwide destination for the discovery and distribution of mobile content, Fabrix T.V., a majority-owned venture that licenses a video software platform optimized for cost effective video storage, high throughput streaming and intelligent content distribution. In addition to these companies IDT owns certain real estate and other smaller businesses.[1]

Macroeconomic Info

GDP Growth

GDP growth forecasts for 2011 were lowered to a range of 3.1 to 3.3 percent. Additionally unemployment forecasts are being estimated at between 8.4 and 8.7 percent. The 2012 ranges are coming it slightly more positive with an estimated rang from 3.5 to 4.2 percent and 7.6 to 7.9, respectively. The Fed's outlook on the economy is a a slow and protracted recoveryt. Ben Bernanke has mentioned that the economic recovery has been set back by weak housing, credit, and increasing energy prices. Although IDT derives a small portion of its revenue from energy it's telecommunications business will still be affected by negative economic factors.[2]

Energy Trends

Although IDT's exposure to energy is relatively small, accounting for approximately 14% of 2010 revenue, it is still important to note trends in energy and how these trends will effect IDT.

The trends in world energy are facing change, the likes of which have never been seen before, as demand for energy booms in both developed and developing economies. As supplies of energy continue to only be available in remote and dangerous locations prices will continue to increases due to the need for heightened security, transportation costs, and decreased supply. This can be seen as being both good and bad for IDT. Although right now IDT is much more of a telecommunications company then it is an energy provider, increased revenues from it's energy assets may out pace telecommunications in terms of revenue in the near future. Although it is good that the energy assets that IDT is holding will appreciate, it is also clear that if IDT wants to continue down the path of energy substantial costs will be associated with doing so.[2]

Telecommunication Trends

IDT's main business segment is telecommunications, as such any significant change or development in the space could have a significant impact on the operations and profitability of the company.

The trends in telecommunications are leading towards more and more mobility. Many homes in the United States no longer have land line service because it has become obsolete with the explosion of mobile phones. Many people are no longer using phones to have voice communications but rather to send instant messages, text messages, or e-mails. It is clear that trends are leading away from land line to mobile, and even towards only text communication. This will clearly have a significant impact on the profitability and business model of IDT. Although IDT is beginning to form relationships with mobile providers its main source of revenue is from land line and prepaid services.[2]

Competitors

IDT is very unique with it's diverse portfolio of telecommunications, energy, and other assets. However, as can be seen by the 2010 Revenue By Segment Graph the majority of the firm's revenue comes form it's telecommunications arm. This makes it most relevant to compare IDT with companies that mainly specialize in diversified telecommunications.

iBasis, Inc. (owned by Koninklijke KPN NV (AMS:KPN)

iBasis, Inc. (iBasis) is a wholesale carrier of international long distance telephone calls and a provider of retail prepaid calling services and enhanced services for mobile operators.

AudioCodes (AUDC)

AudioCodes was founded in 1992 and is based out of Lod, Israel. The company provides telecommunication technology used for voice, data, and video. AudioCodes primarily operates in the United States, Europe, Asia, Latin America, and Israel. The company designs, develops, and sells its products to original equipment manufactures, network equipment providers, systems integrators, and telecommunications distributors and networking industries. AudioCodes has products that provide services for toll bypass and residential gateways. customers.[3]

Vonage Holdings (VG)

Vonage Holdings was incorporated in 2000 and is headquartered in Holmdel, New Jersey. The company provides voice and messaging services over broadband cable networks primarily to residential and small business customers in the United States, Canada, and the United Kingdom. Vonage offers an array of features such as call waiting, caller ID, call forwarding, and voicemail. The company also provides area code selection, number portability, online account management, and Web voicemail. As of December 31, 2009, Vonage had approximately 2.4 million subscriber lines in service.[4]

Consolidated Communications Holdings (CNSL)

Consolidated Communications Holdings was founded in 1894 and is headquartered in Mattoon, Illinois. Consolidated provides communications services to residential and business customers in Illinois, Texas, and Pennsylvania. The company offers a wide range of telecommunications services, including local and long distance calling, private line services, dial-up and high-speed broadband Internet access, as well as digital television services. Consolidated operates a number of complementary businesses, including telephone services to county jails and state prisons, equipment sales, operator services, and mobile and paging services. Consolidated's business customers include small stores, light manufacturers, and service industry accounts, as well as universities and hospitals.[5]

IDT 8 Year Historical Financial Ratios[2]

Profitability Ratios

Image:idtprofitabilityanalysis.png

Liquidity Ratios

Image:idtliquidityanalysis.png

Debt Management

Image:idtdebtmanagementanalysiss.png

Asset Management

Image:idtassetmanagementanalysis.png

Per Share

Image:idtpershareanalysis.png

Porter’s 5 forces

Threat of entry of new competitors

The overall threat of new entry in the telecommunications industry is relatively low. This is mainly due to the amount of capital that is required to access competitive voice and data rates in conjunction with the difficulty to establish the infrastructure necessary to undercut larger discount service providers. These factors make it extremely unlikely that a new competitor would be able to enter the market and take market share away from a long established company such as IDT.

Intensity of competitive rivalries

Telecommunications is an industry in which competition is extremely intense. The intensity comes from lack of differentiation of product. Often times in the telecommunications sector the only area where a company will be able to differentiate itself from its competitors is through price. Price then is obviously the most important factor with regards to competition, however companies also differentiate themselves through quality of service, customer service, and innovation. Customers, such as trading firms, large banks, and news providers constantly demand impeccable quality as any gap in service could lead to a loss of millions of dollars. Clearly in order for a company like IDT to be successful it must be a leader in price quality of service and innovation.

Substitutes

Substitutes for IDT include e-mail, text messaging, instant messaging, and in some ways internet calling services such as Skype, Vonage, and iPhone/iPad FaceTime. These substitutes have been becoming more attractive as more and more people do not have time to talk on the phone and would rather send a short message or sound clip instead. This new way of communicating greatly impacts the way in which IDT operates its business, being focused heavily on land line and prepaid services.

Bargaining power of customers

The bargaining power of the customers within the telecommunications industry is relatively low, however as new technology such as VoIP and other alternatives continue to infiltrate the market customers bargaining power may greatly increase. With this being said many consumers treat wireless, land line, and internet services as commodities. This is because as long as price, level of service, and speed are all of similar quality the provider makes little difference. This commodity based thinking is eliminated with larger companies. Large banks, support centers, and news providers may have worked with the same telecommunications company since inception. This may mean that the telecommunications company is well integrated into the company's infrastructure and has strong relations with the management and it team.

Bargaining power of suppliers

Suppliers to the telecommunications business have relatively high bargaining power. The equipment that they are providing, for the most part, is extremely complex and valuable. Additionally in a business like IDT's where much of the business is reliant on long distance suppliers in foreign countries the bargaining power of the suppliers of data lines is even higher. A situation could arise where a foreign supplier may wholly own the telecommunications lines of the country, which would make it impossible for another company to gain access to the infrastructure and offer competing rates. This could clearly lead to complete supplier bargaining power. However, if this same foreign telecommunications provider wants access to data lines in the United States they may face similar bargaining issues, in some ways this may keep the bargaining power in check.


SWOT

Strengths

IDT has many strengths that separate it from its competitors. One of the greatest strengths is that IDT has direct connections to Tier 1 service providers outside of the United States. Theses Tier 1 providers are the largest recognized licensed carriers in their particular country, and are attractively located in Asia, Africa, and the Middle East. This allows IDT increase the quality of international phone calls while generating more traffic with higher margins. In 2011 IDT continues to expand these direct relationships with mobile network providers, this will hopefully lead to further increases in calling volumes with even higher margins.[1]

Weaknesses

IDT has several weaknesses that could potentially have an adverse effect on future profitability. One of the main weaknesses for IDT is in regards to it's prepaid products business. IDT faces stiff competition in the prepaid products business with established based carriers such as, AT&T and Verizon. Such large companies could significantly cut into the revenues of IDT if they chose to direct their immense marketing, technical, and engineering resources towards the profitable prepaid products business. Since a significant percentage of revenue is derived from this division it could be quite bad if IDT begins to lose market share to these bigger companies. Another one of the main weaknesses that IDT faces is the continued growth of wireless services and Internet based calling services, such as Skype and Vonage. These services offer lower prices and increased connivence. IDT believes that the price of wireless and Internet base calling services will continue to decrease, making such services more attractive then services that provide IDT with the majority of it's revenue.[1]

Opportunity

IDT main opportunities lie in the continued expansion of it's wholesale carrier services business in addition to the continued expansion into the international market. IDT's wholesale carrier services division plans to expand it's relationships with mobile network providers. This will help IDT going forward by hedging out some of the risk associated with their primarily land line and prepaid card divisions. IDT has a growing international reach, which is illustrated by IDT's 2010 international operations revenue of approximately $350 million. This presents IDT with significant opportunity for expansion into a market that they have clearly already established in.[1]

Threats

The main threat to IDT is it's dependency on land based and prepaid products for a significant portion of it's revenue. Although IDT continues to expand into markets where there is still a strong demand for these products it is easy to see how IDT's current technology and strategic plan could no longer work in the future. With domestic demand for these types of products continuing to decline IDT is even highlighting that the transition of customers from land line and calling card based services to mobile could adversely affect their business model.[1]

Financial and Operating metrics[2]

Overview

IDT is actually very much comparable to Vonage and iBasis (note: financial info is available for iBasis prior to its acquisition by KPN). Analyze the financial tables and say something about the similarity and difference between IDT, Vonage, and iBasis, and hopefully you can extract some insights from the comparison. Don't include a table for the sake of including a table; Use it, analyze it, learn from it. IDT's SEC filings provide breakdown by telecom and energy divisions, and therefore the diversified nature of IDT shouldn't be an excuse for not doing comps. There are very few pure-play companies out there; Should we not do comps for Apple simply because it makes both phones and computers?--- RH

IDT is an extremely unique company with it's diverse portfolio of telecommunications, energy, and other assets. This makes comparing IDT to it's peers using financial ratios extremely difficult as there is really no other company like IDT. With that being said the following are the financial metrics of several companies that operate in the diversified telecommunications space and are in some aspects comparable to IDT.

General Information

General Information about IDT’s peers include market capitalization, enterprise value, beta, cost of equity, cost of debt, and WACC.

Image:idtgeneralinfo.png

Financial Ratios

The financial ratios section takes a look at the financial strength of IDT's peers by comparing ratios such as, debt to equity, cash per share, and the current ratio.

Image:idtfinratios.png

Growth Rates and Profitability Ratios

The growth rates and profitability ratios section offers a look at the companies earnings growth and potential future profitability.

Image:idtgrowthratios.png

Image:idtprofratios.png

Valuation Ratios

The valuation ratios section shows the relative value of IDT and it's peers by taking a look at price to earnings ratios, price to sales ratios, and price to book ratios.

Image:idtvalratiosn.png

Management Effectiveness Ratios

The management effectiveness ratios section includes return on assets, return on investment, and the economic value added spread.

Image:idtmaneffecratios.png

Public Comparables

Public comparables for IDT offer a look at how IDT as an entire company does agains business that really only compete against IDT's energy segment. As seen below IDT is trading at multiples that are at the lower end of the spectrum of its peers.

Image:idtpubliccompsnwy.png

Human Resources

Corporate Governance

Shown below is a table of key employees amongst IDT's management team.[2]

Name Title Compensation Education Age
Howard S. Jonas Founder, Chairman, CEO $385,000 Economics, Harvard 54
James A. Courter CFO $2,238,161 JD Law, Duke 69
Ira A. Greenstein President $19,000 JD Law, Columbia 50
Bill Pereira CFO/Treasurer $910,483 MBA, NYU Stern 45
Samuel Jonas Chief Operating Officer Not Public College Dropout 29

References

  1. 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17 SEC FORM 10-K IDT
  2. 2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 Bloomberg Professional Service
  3. http://finance.yahoo.com/q/pr?s=AUDC+Profile
  4. http://finance.yahoo.com/q/pr?s=VG+Profile
  5. http://finance.yahoo.com/q/pr?s=CNSL+Profile
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