1 Different Kind of Value Call

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"Continued economic weakness in the U.S. should continue to benefit the Company."

There's a line you don't hear every day. But that's exactly how magicJack VocalTec (NAS: CALL) explained the stronger-than-expected business that's happening this quarter.

magicJack has just completed two months of its second fiscal quarter, and wanted to share that it has already beaten analyst estimates for the full quarter. "June results will just be additive," the company said. So far, it looks like magicJack will hit earnings north of $0.43 per share on at least $36 million in sales.


The current Wall Street consensus is that magicJack will hit $36 million in revenue but just $0.29 in earnings per share. The company has a history of either crushing estimates or missing them spectacularly. This update was good enough for a 15.6% overnight share price boost, and though shares have pulled back from those highs, it's still up considerably on the day.

So how can magicJack claim that economic weakness is helping the company? Elementary, my dear Fool: The company sells Internet-based phone service at ridiculously low prices. When family budgets are tight, this low-cost solution inspires more consumers to ditch their Sprint Nextel (NYS: S) or Verizon (NYS: VZ) landlines in favor of nearly free magicJack service.

Buy a USB dongle for $40 and get phone service for $20 a year, or get a more expensive gadget to score free global calling for life. There's even a mobile app available if you're on the go. The value is pretty obvious. If I ran Sprint or Verizon, I'd either worry about Internet-based calling day and night or start buying specialists in the field until antitrust regulators told me to stop it.

magicJack and Vonage (NYS: VG) are the more consumer-oriented names in the field while 8x8 (NAS: EGHT) caters to a more corporate crowd. All three are risky microcaps, but they're playing a tune that resonates in this economy. I just opened a bullish CAPScall on magicJack, completing the optimistic trio. Even if one of them falters and dies, the other two are likely to more than make up for that loss in the long run.

Deep-discount Internet services like magicJack are strong plays on a weak economy. This is the communications equivalent of hyper-efficient online retailers killing the traditional big-box stores. The real cash kings of the new economy are changing the face of retail as we speak, and The Motley Fool's top analysts have compiled a special report to show you how it works. Get your copy right now for the unbeatable price of free.

At the time this article was published Fool contributorAnders Bylundholds no position in any of the companies mentioned. Check outAnders' holdings and bio, or follow him onTwitterandGoogle+. The Motley Fool has adisclosure policy.We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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