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Radcom: Analyzing Stakeholder Incentives

Apr. 09, 2018 10:46 AM ETRADCOM Ltd. (RDCM)9 Comments
Mike Arnold profile picture
Mike Arnold


  • Part of my investment strategy is investing behind A players whose economic interests are aligned with shareholders.
  • Zohar Zisapel, known as the “Bill Gates of Israel,” scored a recent win with a reported $430 million sale of Argus Cybersecurity, a startup Mr. Zisapel funded and became Chairman.
  • Mr. Zisapel has demonstrated a record of successful exits. Radcom appears set up for another good outcome for investors.
  • Mr. Zisapel has provided $3.3 million in cash infusions on good terms for all shareholders in a 2013 PIPE ($1.1 million) and 2016 equity raise ($2.2 million).

I have written about the fundamentals of Radcom (NASDAQ:NASDAQ:RDCM) ad nauseam on the pages of Seeking Alpha over the last several years. There isn’t much new to report on that front, other than it has been about ten weeks since RDCM CEO Yaron Ravkaie indicated the company won a new Tier-1 multi-carrier operator on the Q4 earnings call. If you believe, like I do, that management is in the final stages of closing a formal contract, then the stock should be particularly compelling after the latest bout of share price weakness and ahead of a major fundamental catalyst to potentially improve the valuation.

Looking at the 2017 annual report, the company disclosed that AT&T (NYSE:T) contributed $24.5 million in revenue while North America in total contributed $25.1 million. The other $600 thousand in North American revenue is almost certainly Verizon (NYSE:VZ), a contract which is expected to ramp to over $5 million in 2018 as the customer moves more network traffic and functions to the cloud.

Moreover, Radcom reported $3.8 million in “other” revenue, slightly more than 10% of the $37.2 million total 2017 sales (up from $0.7 million in 2016). Given AT&T contributed $19.2 million in 2016, the $5.3 million delta between 2017 and 2016 is likely made up of expansion orders for the new Network Visibility packet broker product and some maintenance/services revenue.

It is unclear how the network packet broker and new MaveriQ deployments are priced, but it appears like the new contracts are subscription models that scale with traffic and number of functions monitored, but capped at a certain level so operators don’t continue to pay above certain thresholds as their networks expand.

That said, Verizon and AT&T were spending between $150 million and $250 million per year on physical probes, so it seems reasonable that Radcom customers would pay

This article was written by

Mike Arnold profile picture
Full-time investor searching for great management teams, clean capital structures & scalable growth.Inactive CPA and CFA.Always trying to learn from mistakes and to stick to a process.

Analyst’s Disclosure: I am/we are long RDCM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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