Is Deltathree (DDDC) the Next MagicJack or Vontage? CALL & VG

Many investors or consumers alike are probably familiar with VoIP stocks magicJack VocalTec Ltd (NASDAQ: CALL) and Vonage Holdings Corp (NYSE: VG), but small cap VoIP stock Deltathree, Inc (OTCMKTS: DDDC) has surged more than 700% over the past two trading days. That's pretty extraordinary, but what is the whole story about Deltathree and could it be more compelling than other VoIP stocks like magicJack VocalTec Ltd and Vonage Holdings Corp?

Why is Deltathree Surging?

On Friday, Deltathree surged 277.8% to $0.068 and on Monday, it surged 120.59% to $0.150 for a market cap of $10.84 million. The only explanation I can come up with for Deltathree surging is a Bloomberg story entitled: "Waze Deal Primes Israel's Silicon Wadi for Wave of Investment." The article talks about the recently announced Google (NASDAQ: GOOG) acquisition of mobile map developer Waze Inc. which marked one of the most "lucrative outcomes" for an Israeli technology startup as it was bought for about $1.1 billion. Waze was founded in 2008 by Ehud Shabtai, Amir Shinar and Uri Levine and in 2009, they hired Noam Bardin, an Israeli serial entrepreneur, as CEO plus they raised $12 million from venture capitalists.

The article later mentioned:

Bardin, who previously ran online-video startup Intercast Networks and co-founded online-calling service Deltathree Inc. (DDDC), has increased his presence in the Israeli startup scene in recent years, speaking at conferences and appearing at technology-industry events.

What's the Whole Story With Deltathree?

Investors should be aware that Deltathree has been around for some time. In fact, it even has a Wikipedia page summarizing its history as the company was founded before the dot.com bubble way back in 1996. A year later, RSL Communications, an investment firm owned by Ronald Lauder (as in the son of Estée Lauder), acquired a majority stake in Deltathree which listed on the NASDAQ in November 1999. In 2001, RSL Communications sold its stake in the company to billionaire entrepreneur Yitzhak Tshuva who later sold his shares at a profit. However, Deltathree was delisted by NASDAQ in March 2008 after falling below the $1 level and after reporting a $5.2 million quarterly loss.

In 2009, it was reported that Deltathree had sold a majority stake (54.3%) to Australian company D4 Holdings for $1.17 million in cash. The owners of D4 Holdings also happened to be the owners of privately held ACN - a large international direct seller of telecommunications services, targeting consumers and small businesses around the world. Interestingly enough though, the article noted that under the agreement, D4 also had the right to pick up an additional 30 million shares at 4 cents a share for the next ten years.

Otherwise, investors should be aware that Deltathree has reported revenues of $13.68M (2012), $10.54M (2011), $14.20M (2010) and $19.00M (2009) along with new losses of $1.58M (2012), $3.05M (2011), $2.50M (2010) and $3.20M (2009) for the past four years according to Google Finance data. At the end of the first quarter, Deltathree reported $0.17M in cash and $0.68M in receivables to cover $4.26M in current liabilities plus $2.63M in long-term debt.

In other words, Deltathree is still not profitable in a crowded field that includes magicJack VocalTec Ltd and Vonage Holdings Corp. and it does not exactly have a lot of cash on hand either.

Share Performance: VoIP Stocks DDDC, CALL & VG

Small cap Deltathree is up 650% since the start of the year, up 275% over the past year and up 15.4% over the past five years. In comparison, magicJack VocalTec Ltd is down 15.3% since the start of the year, down 24.8% over the past year and up 1,140.8% over the past five years while Vonage Holdings Corp is up 38.7% since the start of the year, up 67.9% over the past year and up 99.4% over the past five years.

Here is a quick look at the latest technical charts for VoIP stocks magicJack VocalTec Ltd and Vonage Holdings Corp:

The Bottom Line. I'd be a little cautious about getting into small cap VoIP stock Deltathree with a long-term time horizon, but certainly there are a few traders who have come out big winners over the past few days.