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magicJack VocalTec Ltd. Message Board

  • behavioraltrader behavioraltrader Apr 19, 2013 9:11 AM Flag

    Research Report on CALL Settlement to Collect/Pay 911 Fees

    Conclusion and Catalysts

    We expect cases like the one we described in West Virginia to increase in number, and we expect CALL to settle or lose each case. We expect that because of 911-related fees, CALL will have to either:

    1. Absorb the 911-related costs without raising prices and reduce profits
    2. Raise the prices for selling and/or servicing the magicJack and lose revenue
    3. Stop providing 911 services and lose revenue

    Each scenario is unfavorable for CALL revenues and profitability, and renders their business model and pricing strategy invalid, in our opinion. Based on this scenario analysis, we feel that CALL stock is significantly overvalued in each case, and that CALL’s business model has a major flaw and that it is at a conflict with 911 fee regulations. We believe that in each scenario, the company is adversely affected by these fees, and given the uncertainty of potential liabilities related to CALL's failure to collect and pay the 911 fees, it is hard to assign any value to CALL stock.

    Further, without alleging any wrongdoing, we believe that there is a significant chance that the SEC will investigate CALL with respect to their treatment and disclosure of the 911-related complaints and lawsuits. To the best of our knowledge, CALL has not disclosed the 911 settlement with Kanawha County. It will be up to the SEC to investigate the significance of the settlement as a precedent in 911-fee litigation, and determine if its omission from CALL’s financial statements was an omission of a material fact.

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    • BT,

      While I do agree that regulatory risk has always been one of the biggest risks for MJ, a couple quick thoughts regarding your short bet at this time. You are essentially on betting on three things:

      1) That your due diligence is better than BlackRock (which increased holdings as of 4/17/13 to over a millon shares), Adams Street Partners, and experienced Telecom vet Vento.
      2) Regulators, which never move quickly or without multiple 'comment periods', will somehow magically deliver an adverse judgement in the next couple weeks, after not having done so for years. In my opinion that is an extremely poor risk/reward bet into the coming earnings and new product release.
      3) MJ (and the entire voip industry) is completely unable to manage this regulatory risk.

      I get that you guys are short calls and have timed this to maximize your chances of pinning the $15 strike today, especially considering the relative lack of option open interest past the April contract. That being said, if you are truly short even after expiration, I think your hubris at your ability to have successfully operated this stock in 2013 could be setting you up for a lot of pain in the coming months.

      Just my humble opinion.

    • Friendly Disclosure: Currently short CALL either direclty or through use of derivatives, or both.

      • 1 Reply to behavioraltrader
      • BT, assuming your shorts were initiated on April 19 (judging by the time your of entry here), you must be in the red by now. I am not discounting the fact you may have hit a major issue but I think it is extremely dangerous to try and short a company who just posted record earnings over two consecutive quarters. That does not necessarily guarantee they are coming out with record earnings yet again, but to try and short something that has been beaten down severly already just to prove a point to some idiots here is just plain dangerous and foolish. I still remain short to medium-term bullish but more bearish in the long run unless some M&A action starts taking place.

        Good luck, pal, and always remember no one is your friend in the market.

        Sentiment: Buy

    • I am sure you like "Dreamer" from Ossi Osborn:)

      Very long and very strong:)

      Sentiment: Strong Buy

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