IDT Corporation (IDT): A Tale of Two Parts, Told In Two Parts

Leadership, risks, and valuation at the crossroads

Dear Reader: Despite having never met in person and being separated by the Atlantic Ocean, Mauricio Heck (writing as Polymath Investor) based in Canada and James Emanuel (writing as Rock & Turner) in the U.K. have become well acquainted through a mutual respect for the writing and investment analysis of the other.

On discovering that we were both analyzing the same business, we agreed not to duplicate efforts but to collaborate - this analysis is the result.

Part 1 is being published on the Rock and Turner Substack page (which you can access here), while Part 2 has been simultaneously published in this newsletter. Please be sure to read them in the correct order and if you haven’t done so already, perhaps you will consider subscribing to both.

(Read Part I here)

The Leadership and Capital Allocation Philosophy

Founder Howard Jonas remains IDT’s strategic architect and chairman, with a decades-long track record of value creation and reinvention. Though his son, Shmuel Jonas, has been CEO since 2014, Howard still holds sway, owning all Class A shares (3 votes per share) and ~17% of Class B shares, giving him 70.3% of total voting control.

While such control may raise governance concerns, in this case, it aligns incentives: the Jonas family wins only if shareholders do.

Executive compensation is performance-based, tied to both company-wide and segment-specific metrics; like revenue, EBITDA, cash flow, and unit growth. The structure encourages long-term thinking, cost discipline, and operational synergy. This is a classic owner-operator setup, with skin in the game and a clear bias toward accountability.

Prudent capital allocation is a hallmark of Howard Jonas. His track record is central to the investment thesis. He is a master capital allocator who has demonstrated time and again his ability to incubate, nurture and ultimately unlock the value for shareholders. Over the years, IDT has successfully spun off numerous businesses, including:

• Straight Path Communications: Spun off in 2013 and later acquired by Verizon for its valuable 5G spectrum assets in a deal worth over $3 billion.

• Genie Energy: An energy services company spun off in 2011.

• Zedge: A mobile content platform spun off in 2016.

• Rafael Holdings: Comprising real estate and pharmaceutical interests, spun off in 2018.

This history demonstrates a clear and repeatable playbook. Management has proven it is not sentimental about business structure and is willing to take the necessary steps to unlock the value of its incubated assets for shareholders. It was against this backdrop that we suggested earlier in this analysis that future spin-offs are a real possibility.

Risks

No investment is risk-free. With IDT, we see five key areas to monitor:

1. Legacy Decline: The Traditional Communications segment is in managed decline. If the growth businesses don’t scale fast enough to offset this, overall earnings could suffer. The thesis hinges on new ventures outpacing the old.

2. Regulatory and Geopolitical Scrutiny: As a global telecom and money transmitter, IDT operates in a web of shifting regulations. Compliance missteps could lead to fines, license loss, or reputational harm. Political instability in key regions (e.g. Eastern Europe, Middle East) could also disrupt remittance or telecom flows.

3. Litigation: The company operates in the U.S., a highly litigious environment. A class action tied to the 2017 Straight Path sale (alleging misconduct by founder Howard Jonas) was dismissed, but the judge criticized Jonas’s conduct, so there is reputational sensitivity.

4. Customer concentration: In Q3 FY25, IDT reduced exposure to a large programmatic ad customer, cutting segment revenue by 12% YoY. This underscores the earnings volatility tied to a concentrated client base.

5. Intense Competition: IDT’s growth markets (fintech, POS, UCaaS) are crowded with both nimble startups and well-funded incumbents. From Square and Toast in POS, to Remitly and Wise in remittances, and RingCentral in cloud voice, staying ahead will demand continuous innovation and sharp execution.

Despite this competitive landscape, IDT’s mix of cash generation, regulatory credentials, and niche dominance in immigrant and independent retail communities may give it more staying power than typical small-cap peers.

More particularly, with big players looking to expand in key markets in which IDT currently holds a strong position, this could make IDT a potential acquisition target, which is another avenue in which shareholders may unlock significant value in future. This is another strong argument in favour of spin-offs and a legal separation of business divisions.

Catalysts to Monitor:

• Growth rates in NRS and BOSS Money

• Margin expansion in fintech and net2phone

• Progress toward spin-offs or strategic separations

• Regulatory or competitive developments impacting core segments

Valuation

IDT Corporation was removed from the Russell 2000 Dynamic Index on June 29–30, 2025, due to its strong share price performance and rising market capitalization. The index, which focuses on small-cap companies with higher volatility and cyclical exposure, undergoes annual reconstitution. This removal may help explain the sell-off at the beginning of July.

We conducted a comprehensive sum-of-parts valuation of IDT Corporation by analyzing three years of historical divisional performance from 2022-2024 (the strategic transformational period) and projecting forward through 2030.

The NRS division emerged as the clear standout performer, growing revenue from $51.3 million in 2022 to $103.1 million in 2024, representing exceptional annual growth rates of 50.3% and 33.7% respectively. More importantly, NRS maintains premium gross margins consistently above 84% with operating margins stabilizing around 20%, demonstrating both pricing power and operational efficiency.

The Fintech division showed equally impressive top-line growth, expanding from $64.6 million to $120.7 million over the period, though profitability remained challenged throughout with negative yet improving operating margins increasing from -10.68% in 2022 to nearly breakeven at -0.08% in 2024.

The net2phone division demonstrated steady but modest growth from $58.2 million to $82.3 million, with the critical achievement of a profitability turnaround from an operating loss of $11.1 million in 2022 to a profit of $1.7 million in 2024.

Meanwhile, the Legacy Business exhibited the anticipated decline, with revenue contracting from $1.19 billion to $899.6 million, representing annual declines of 15.7% and 10.3%. Despite these revenue pressures, the division maintained stable gross margins around 18% and operating margins near 6%, indicating effective cost management during the transition period.

For our forward-looking projections, we established differentiated growth assumptions reflecting each division's maturity and market positioning. We projected the Legacy Business to continue declining at a ~10% CAGR, acknowledging the mature nature of traditional telecommunications services. For the growth divisions, we assigned NRS a ~20% CAGR based on its proven execution capability, Fintech the highest growth rate at ~25% CAGR reflecting the expansive market opportunity, and net2phone a steady ~10% CAGR representing continued momentum in cloud communications.

Our operating margin assumptions were calibrated based on historical trends and expected operational leverage. We maintained the Legacy Business at 6.2% operating margin consistent with recent performance, projected NRS at 21% reflecting its premium positioning and current run rate, and conservatively assumed Fintech would achieve 10% operating margin indicating operational efficiency gains, with similar projected assumptions for net2phone at 10% representing continued improvement from its recent profitability achievement.

The blended result shows that the combined revenue declines initially to $1.18 billion by FY2028 before recovering to $1.29 billion by FY2030, reflecting the mathematical impact of the large Legacy Business decline being gradually offset by accelerating growth in technology divisions. More significantly, the profitability metrics show substantial improvement with blended gross margins expanding from current levels to 38.44% by 2028 and 44.21% by 2030, driven by the increasing revenue contribution from higher-margin technology divisions. Operating margins are projected to strengthen to 9.55% by 2028 and 10.62% by 2030, while net margins reach 6.67% and 7.38% respectively.

Our earnings projections, based on an assumed 1% annual share count reduction, yield earnings per share of $3.21 by 2028 and $3.96 by 2030. Applying a 16x forward price-to-earnings multiple produces target share prices of $51.40 and $63.40 for these respective periods (close to where the shares trade today). However, on a net present value basis using a 10% discount rate, we arrive at a current intrinsic value in the range $31.92 - $38.62 per share.

This discrepancy implies one of two things: either the share price has surged ahead of fundamentals and will need time to grow into its valuation, or our assumptions are too conservative and the market is pricing in stronger near-term performance than we currently expect.

It’s also worth highlighting that while revenue has softened over the past five years, gross profit and free cash flow roughly have doubled, and operating profit and net earnings are up by ~350%. Yet, the share price has risen by more than 800%. This disconnect between fundamentals and valuation suggests that investor sentiment may be drifting into irrational exuberance.

The chart below illustrates the share price volatility over the past five years – which suggests that the market may also be undecided about the true value of this complex business. The green line indicates our current target valuation range.

Source: Tikr.com

Now, under a more management-aligned upside scenario, for FY2025 one could model a modest revenue inflection driven by accelerating growth in the company’s technology divisions. NRS is projected to grow at ~25–28% CAGR, Fintech at ~30%, and net2phone at ~12%, while the Legacy Business continues declining at ~6–8%. Margins expand meaningfully as the business mix shifts: gross margins climb to ~55% by 2030 and operating margins reach ~11%, fuelled by higher-margin tech contributions. Earnings per share rise to $5.23 by 2030 under a modest 1% annual buyback assumption, implying a potential share price of ~$83.71 using a 16x forward P/E. Discounted at 10%, this scenario suggests a present value in the $44–50 range —a range that, in our view, provides no margin of safety.

We remain confident in our assumptions and are reluctant to revise them, largely due to several foreseeable risks. These include potential execution hurdles in hitting projected growth rates, competitive pressures that could erode margins, market dynamics influencing the pace at which the Legacy Business winds down, and uncertainties related to growth initiatives.

Our sum-of-the-parts valuation presents IDT as a company that is steadily navigating a complex business transformation. While the near-term metrics reflect some transitional strain, the underlying analysis of each division points to a compelling long-term value creation story. This valuation approach also offers a solid framework for tracking progress and adjusting our view as needed, especially as future earnings reports reveal how each part of the business is evolving and market pricing changes. At some point, when conditions align, this could become a compelling investment opportunity with a comfortable margin of safety. In our view, however, that time hasn’t arrived yet.

Is IDT Corporation A Good Investment?

IDT Corporation presents a compelling, if complex, investment case. It is a company in the midst of a profound structural shift, moving from a low-margin, declining legacy business to a future defined by a portfolio of high-growth, high-margin technology platforms.

With aligned ownership, strong financial discipline, and a well-worn playbook for spin-offs, this is a business not afraid to break itself apart to unlock value.

The company's true value is somewhat obscured by its consolidated financial statements, which blend the declining revenues of the old with the soaring growth of the new. One catalyst that will unlock this hidden value is the separation of one or more of the growth businesses from the legacy operations. Given management's long and successful history, this is not a matter of if, but when.

Until then, an investment in IDT is a stake in three rapidly scaling businesses supported by a stable, cash-generating legacy operation and led by a management team with a proven ability to create immense value for shareholders. It is an way to invest alongside a master capital allocator at a point of maximum strategic inflection.

Disclaimer

This newsletter (the “Publication”) is provided solely for informational and educational purposes and does not constitute an offer, solicitation, or recommendation to buy, sell, or hold any security or other financial instrument, nor should it be interpreted as legal, tax, accounting, or investment advice. Readers should perform their own independent research and consult with qualified professionals before making any financial decisions. The information herein is derived from sources believed to be reliable but is not guaranteed to be accurate, complete, or current, and it may be subject to change without notice. Any forward-looking statements or projections are inherently uncertain and may differ materially from actual results due to various risks and uncertainties. Investing involves significant risk, including the potential loss of principal, and past performance is not indicative of future results. The author(s) may hold or acquire positions in the securities or instruments discussed and may buy or sell such positions at any time without notice. The views expressed are those of the author(s) and are subject to change without notice. Neither the author(s) nor the publisher, affiliates, directors, officers, employees, or agents shall be liable for any direct, indirect, incidental, consequential, or punitive damages arising from the use of, or reliance on, this Publication.