Internet Gold – Golden Lines
(Nasdaq:IGLD)
Petach-tikva, Israel
Web Site:
www.igld.com
Internet Gold - Golden Lines is one of the most aggressive and successful new
media and Internet service providers (ISPs) in Israel. The company’s business
lines are broadly based with operations carried out via 10 subsidiaries. Its
core business is communication services with a secondary business in media.
The firm competes in six Internet/New Media markets in what is referred to as
its 6-points of presence, including Internet Access, Value Added Web Services,
International Telephony Services, Content and EAdvertising, E-Commerce, and
numerous Internet Properties. The company’s portfolio of Internet portals and
e-Commerce sites are operated though its wholly owned subsidiary, Smile.Media.
Internet-related services are offered via its fully owned 012
Smile.Communications subsidiary, which holds a onethird share in the ISP market
in Israel. The unit recently entered into Israel’s local telephony market with
the launch of its VOB (Voice Over Broadband) domestic telephony solution and is
in the process of becoming the first ISP to hold a permanent unlimited VOB
license in Israel. The Israel telephony market is estimated to be worth over $1
billion per year.
The international telephony business is operated via Golden Lines, a major
player in the international telephony market in Israel, acquired in December
2006. This market, estimated at two billion minutes and $440 million per year,
has strong growth metrics and is equally divided between three companies: Bezeq
International, Golden Lines and Barak.
With about 7.15 million people living in approximately two million households,
and about one-third of Israel’s labor force possessing a higher education
degree, the market fits well with what the company offers.
Financial Results
Latest Quarter: Q2, 2007
Revenues for the second quarter of 2007 were $69.7 million, up 209% from the
year earlier second quarter. Smile.Communications’ secondquarter revenues
(including the operations of Golden Lines) increased 250% year-over-year to
$65.3 million, while revenues for Smile.Media fell marginally to $4.5 million.
The slight decline at Smile.Media was due to the temporary and intermittent
closures of an e-Commerce site as a result of upgrades to the platform.
Net Income for the second quarter surged 233% year-over-year to a record US$5.3
million, or US$0.25 per share. This included a one-time charge of US$0.35
million related to the merger of 012 Smile.Communications and Golden Lines,
along with an income tax benefit of US$1.5 million associated with
Smile.Communications. Excluding these adjustments, net income for the second
quarter was $4.15 million.
The addition of Golden Lines has created synergies and increased profitability.
Golden Lines reported record net income of $9.6 million, or $0.47 per share, in
the first half of 2007, an increase of 206% over the comparative period in 2006.
Guidance and Outlook
The sole analyst covering Internet Gold, Dutton Associates, is estimating
earnings of $0.94 per diluted share in 2007 on year-over-year revenue growth of
206% to $299.8 million. For 2008, earnings are estimated to rise to $1.27 per
diluted share on revenues of $344.1 million. The estimated 2008 P/E is an
attractive 8.35 times.
It was announced that on Oct. 29, Internet Gold will spin off its 012
Smile.Communications subsidiary, which operates a broadband Internet service,
VoIP-based telephone and business services, and a network of Wi-Fi Internet
access spots throughout Israel. After the deal closes, Internet Gold will own
73.3% of the 012 Smile.Communications business and all of its Smile.Media
business, which provides online content, advertising, commerce and search
services. Internet Gold hopes to net about $91.3 million from the offering of
6,675,000 shares at a price between $14 and $16 per share.
Concluding Remarks
The Internet media industry in Israel is competitive and still developing,
but Internet Gold has competed favorably.
The firm’s demonstrated ability to deliver profits suggests an ability to thrive
in highly competitive environments. The company’s entry into the VOB telephony
market will add another key revenue stream and expand net income in the upcoming
quarters.
Internet Gold has excellent upside potential and share price appreciation
potential for the growth investor.
