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Net2Phone jumps on 3Q results, upgrades

Net2Phone shares rallied up 3 1/2, or 12 percent, to 33 Thursday, one day after Internet telephony firm posted a smaller-than-expected loss in its third quarter.

In the quarter, Net2Phone (Nasdaq: NTOP) posted a loss of $11.4 million, or 21 cents a share, on sales of $18.9 million.

A survey of analysts by First Call Corp. pegged the Hackensack, N.J. company for a loss of 22 cents a share in the quarter.

On Thursday, Dain Rauscher Wessels upgraded the stock from a "buy aggressive" rating to a "strong buy."

Rick Juarez, an analyst at Robertson Stephens, raised his fiscal 2001 estimate from a loss of $1.03 a share to a loss of 84 cents a share.

"We believe the upside was driven by solid growth in higher-margin international minutes, as well as Net2Phone's nascent, but strategically powerful move into wholesale traffic for carriers," Juarez said in a research note. "It is our belief that Net2Phone's recent moves to broaden its revenue streams will enable the company to extend its leadership in this hotly contested market."

The $18.9 million represents more than a 100 percent improvement compared to the year-ago quarter when it lost $830,000, or 3 cents a share, on sales of $9 million.

Gross profit margins were 42 percent down from 46 percent in the second quarter.

"Once again, Net2Phone has demonstrated strong growth coupled with new initiatives for additional revenue streams, such as our carrier wholesale initiatives, broadband opportunities and Yap -- our new hardware line," said CEO Howie Balter in a prepared release. "Not only are our gross margins significantly higher than anyone in the industry, but the company's VoIP product and service offerings continue to be the most attractive and competitive in the industry."

In the quarter, Net2Phone's total minutes of use grew to 121 million minutes, up 89 percent from 64 million minutes in the year-ago quarter. By quarter's end, Net2Phone had more than 825,000 active customers who had paid for and used Net2Phone's services during the past three months, a 43 percent increase over the prior quarter's 575,000.

Earlier this quarter, AT&T (NYSE: T) announced it would acquire a 39 percent voting stake in Net2Phone. The companies expect the deal to close in the first quarter of fiscal year 2001.

An AT&T-led consortium, which includes Liberty Media and British Telecom (NYSE: BTY), will purchase 4 million newly issued Class A shares from Net2Phone at a price of $75 a share.

The consortium will also purchase 14.9 million Class A Net2Phone shares from IDT Corp. (Nasdaq: IDTC), currently Net2Phone's controlling shareholder, for $75 per share. IDT also inked agreements with AT&T and the Concert international venture.

The consortium will invest $1.4 billion in the deal, with AT&T accounting for 51 percent of the total. The transaction, which has been approved by the boards of AT&T, IDT and Net2Phone.

Last quarter, it beat the Street estimate, losing $8.7 million, or 17 cents a share, on sales of $15.5 million.

Its shares went on a wild ride in August, surging from a 52-week low of 15 to a high of 92 5/8 in a three-week span.

All six analysts covering the stock rate it a "buy."

Analysts are expecting it to lose 75 cents a share in the fiscal year.