Hedge fund sticks to losing bet on MagicJack shares
WHEN hedge fund manager WhitneyTilsontoutedMagicJack VocalTec Ltd in February, he said it was a beaten-down stock with great management and fixable problems. The shares have fallen another 37 per cent since. Tilson is undeterred. “Obviously it’s been a disappointing investment so far, but I think it’s pretty cheap right now,” Tilson, who oversees US$83 million at Kase Capital Management in New York, said by phone.
“There’s a decent chance that we saw the bottom in the third quarter, and that things will stabilise and start to turn up.”
Shares of the company, whose main product is a device that connects to a computer or router to enable voice calls over the Internet, sank 12 per cent last week, compared with an 0.9 per cent drop on the Bloomberg IsraelUS Equity index, after reporting a seventh consecutive quarter of declining sales.
Investors are growing increasingly skeptical of MagicJack’s plan to transform itself from a voice-over-IP company to a provider of free mobile communication services, with shares now trading at a four-year low of US$8.62, below the level when chief executive officer Gerald Vento took over in January 2013.
Tilson argues the turnaround plan will halt a slide in subscriptions, and a new agreement with Spain’s Telefonica SA to sell the device in Mexico looks promising.
Sales at MagicJack fell 27 per cent to US$25.8 million in the third quarter, steeper than the 23 per cent drop forecast by analysts surveyed by Bloomberg.
Tilson has compared his MagicJack bet to an investment in Netflix Inc, which he said earned him an eightfold return.
He said he bought shares of MagicJack about a year ago, and took some profits as the stock rallied 78 per cent in the first three months of the year.
That rally has been wiped out by sliding revenue and analyst downgrades, triggering a 28 per cent rout in the stock this year.
While his assets under management may be dwarfed by larger funds, Tilson has become a well-known figure in the industry by publishing a newsletter and co-founding the Value Investing Congress, a biannual conference devoted to the investment principles of billionaire Warren Buffett and his mentor, Columbia University professor Benjamin Graham. — Bloomberg