Envoy Global Research

Incredimail Raises Guidance - Stock Should Really Trade Higher

"just not sure why people wouldn't it be buying it like there's no tomorrow."

We were all thinking the same thing when MAIL was at $3 and was trading at a negative enterprise value. And yet, eventually it doubled and more.

Just give it time and the stock will perform well. It takes time for the Market to catch up with these types of micro caps.

In the meantime, we all collect our dividend, which as Michael has pointed out, is better than we can get in any money market. The dividend, at this rate, is well covered for a decade, just given the cash and profitability.

Vocaltec: A Company with Cash and a Growing Business in Emerging Markets

MAIL continues to slide. Maybe you can suggest to management over at ANSW to takeover MAIL? Seems like ANSW has more credibility with Wall Street, so they garner a higher valuation than MAIL, despite having a very similar business model and despite MAIL's larger top line and better profitability. So an acquisition of MAIL would be immediately accretive for ANSW and support a much higher valuation for ANSW shares.

Vocaltec: A Company with Cash and a Growing Business in Emerging Markets

I think it is important to add that VOCL has approximately $2 million in restricted cash, which is seemingly used as a security deposit against certain leases (according to the 20-F). This seems very high for these purposes, and since I can't find any other reason for such a high restricted cash balance, I believe that some of the restricted cash will be freed up soon, implying that the cash balance/per share is a bit higher than you estimate.

All in all, it seems unbelievable that a company whose business is improving every quarter (they should break even by year end), and that finds itself at very opportune time in the VOIP industry, can trade at a negative enterprise value. The risk/reward here is simply incredible.

Very similar situation to MAIL at $3, and once people discover VOCL it should provide a similar return.

Vocaltec: A Company with Cash and a Growing Business in Emerging Markets

Hi Michael,

Thanks for writing up VOCL. I highlighted this on Envoy Research back in August.

I think it

IncrediMail: Drop in Share Price Isn't Based on Fundamentals

Funny, the fact the VC sold at $2.60 last year, was exactly the reason why I bought back then.

When VC's need cash for whatever reason, and they sell long-term holdings that they are tired off, they nearly always sell at the exact bottom. It's a common buying signal. VC's dumps everything at a ridiculous valuation, you buy.

As for the dividend, they have over $25 million in cash, and they can support this dividend for years even with lower profits. Nevertheless, their dividend rate now is 50% of net profits this year. Easily covered.

How anyone views this type of dividend as a negative is beyond me. If only every publicly-traded company paid out this percentage amount in dividends every year, instead of paying executives exorbitant salaries and stealing profits from shareholders, the stock market would once again become a true investment vehicle instead of the gambling casino it has become. Bravo to MAIL management for making investing meaningful again, and doing what every public company should do, share profits with shareholders so that we don't have to rely on speculative share price gains for income.

IncrediMail: Drop in Share Price Isn't Based on Fundamentals

The flipside is that once Yaron is done selling, and I'm reasonably certain he is close to or already done, the stock will rebound quickly.

The sell-off obviously has nothing to do with fundamentals. MAIL's latest dividend announcement is equal to their entire income for the first half of 2009. Their policy is now to payout 50% of net income each year as a dividend, meaning that earnings for this year will be at least $0.80 per share. Though, I expect it to come in a bit higher. So excluding cash, the stock is at about 7X earnings, which is still very cheap for this type of business.

IncrediMail Buying Opportunity: Stock Sales Misjudged

Good points.

It's also worth mentioning that as Yaron sold, SPROTT ASSET MANAGEMENT LP out of Canada, a highly respected fund, picked up a 5% position in MAIL.

Also, I don't think Wall Street is misjudging MAIL, as I believe few on Wall Street even know about this company yet, as indicated by the extraordinary low valuation and lack of analyst coverage. Incidentally, MAIL management has only recently started to talk to the Street.

Notably, Google hit a 52-week high today. MAIL is basically a "distributor" for Google. With Hi-Yo gaining traction and the new version of Incredimail now out, it is very likely that MAIL will continue to surprise on the upside.

IncrediMail Raises Guidance: Expect Stock to Head North

It is actually quite simple to project revenues from search and adsense. Anyone who is in this business does it all the time. It is based on estimates of traffic, search queries, and average cost per click. For all of this data you have historical trends, as well as recent information. Estimates tend to be very conservative here, since you don't assume a major increase in traffic.

IncrediMail Raises Guidance: Expect Stock to Head North

Actually, they will exceed $9 million in EBITDA this year. I suspect this is still somewhat conservative. And next year with Hi-Yo on additional IM platforms, growth will continue.

Wondering if you, as a VC, have any comps on some of the private Internet advertising company valuations. I would think that MAIL should easily be valued at 10X EV/EBITDA or about $12 per share. In theory, I would imagine that MAIL should trade at a premium to private market valuations, given that it is a public company.

IncrediMail Continues Its Upside Surprises

Hi Michael,
Great summary. We've been agreement with you on MAIL since the start and had a good interview with the President posted here awhile back.

Just a quick two points:

1. MAIL's business is traditionally seasonal, following the traditional seasonality of all Internet advertising businesses. Therefore, I think $10 million on the bottom line is a bit too high, in terms of expectations. Company is now guiding for $7 million in EBITDA, which seems low, for sure, but I think is a good base to use when estimating the potential earnings. That said, even $7 million on the bottom line equates to about $0.75 per share in earnings.

2. Your forgot to mention the incredible balance sheet! Even after the one-time dividend of around $5 million, MAIL will have approximately $23 million in cash or $2.50 per share. So, subtracting the $2.50 from the current market price of MAIL of $6.50, gives you a $4 per share Enterprise Value. Set against $0.75 per share in earnings/cash-flow, this equates to a measly multiple of around 5. Possibly the cheapest Internet advertising business in the entire market, despite the above-average business fundamentals.

In all, I agree. There is still huge upside in MAIL if they continue to deliver. Additionally, since there are so few shares in the public float, I expect MAIL's valuation to greatly exceed standard industry multiples as more investors discover this gem in the Internet advertising space.

Three Israeli Baby Googles

This is a good article, but just a small correction. MAIL has nearly $26 million in cash. In October of 2008, they were able to cash in on their Auction Rate Securities and received $5 million for them. This was not reflected on their balance sheet from the last quarter (ended 9/2008), when they reported about $21 million in cash. See SEC 6-K on 10-27. So in reality MAIL is selling for under cash right now. Yet, it has higher revenues than ANSW and a higher profitability level (MAIL should be very profitable in 2009, as you mention).