IDT (IDT) has a history of spinoffs, and in the middle of 2013, the company spun off a bunch of its intellectual property and spectrum assets into Straight Path Communications (STRP). Suffice it to say, expectations were low. The company had previously attempted to monetize these assets and failed. The business and assets were difficult to understand and value. Additionally, we noted that helming the new venture was the inexperienced Davidi Jonas, son of IDT’s CEO and Chairman, Howard Jonas. His main experience up to that point was teaching and serving as a pulpit Rabbi; a combo that hardly screamed CEO material. Some disagreed and thought the company had a lot of upside, but we were skeptical.
Well…shows what we know. Despite coming down a bit recently and collapsing in initial trading, over the past two years, Straight Path has delivered strong returns and is up nicely since the spin. Its market cap is ~$300m and I believe at one point it even eclipsed IDT’s. It has even paid a dividend. What happened? Shortly after its gaining independence, the company unleashed a torrent of lawsuits against dozens of rich technology companies. Eventually settlements and licensing payments started rolling in and the company generated a sizable amount of revenue. Additionally, the company began developing its spectrum assets and seemed to get an assist from the FCC’s NOI to examine millimeter spectrum. Expenses, outside of hefty amounts of executive compensation, are low leading to sizable earnings.
Of course, it hasn’t been all smooth sailing and the road ahead looks bumpy. The company recently had a patent thrown out, jeopardizing its future lawsuits and even some of its prior settlements. It is currently appealing that ruling, but you never know how courts will rule. Patent lawsuits aren’t so popular. Additionally, the spectrum assets still maintain that lottery ticket feel – it’s unclear when the value will, if ever, fully appear. Finally, as with every IDT company, there is also the Jonas factor – Howard controls the company and can do what he wants.
Sometime after the spin, I had the opportunity to speak with Mr. Jonas and I came away really impressed with his passion and vision for the business. It’s no surprise he delivered. I think this situation also shows one of the often overlooked benefits of spinoffs. Straight Path, comprised of seemingly abandoned assets, was able to bring about tremendous shareholder value once it had a dedicated and focused management team. Within the larger organization, it didn’t stand a chance.
The path forward will likely remain bumpy as the stock makes big moves on news and events. Event risk exists, but the overall risk profile looks a bit different today than it did immediately post-spin. Hopefully, shares resume their straight path upwards, but shareholders must be happy with the results so far.
Disclosure: Author holds no position in any stock mentioned.