Origin Story
To start a business, come up with a killer product — say, water, in a can — come up with a brand, a marketing idea, distribution, and, finally, find some customers to pay you. This is standard stuff. Build a product. Then find customers.
Another approach — sometimes an easier approach — starts with customers. When you have customers — maybe they're pet owners, maybe they're restaurants — then you back into things that they need or want and can pay for.
Plenty of businesses take this approach too. It's, basically, what distributors and wholesalers do. Businesses that can carve out very specific customer sets though, can achieve wild success. Part of Apple's magic comes from finding more things to do for its customers. And Apple people can only exist in the Apple digital economy. Apple collects a take on all of it. Very profitable.
Lamplighter’s raved about customer-driven companies before.
From here to there
Then there’s IDT: it’s also organized around customers. Those customers share an origin story: somewhere else. That's what ties them together. Many are immigrants and first-generation living in the US or Canada or they're the family and friends back in the old country — Uruguay, Dominican Republic. Or they're just workers in high-contact roles – some in those other places – that need to connect with a lot of different places. This entanglement — between customers and somewhere else — is what draws them to IDT. IDT serves its customers a set of products and services they'd have a hard time cobbling together on their own.
IDT's products are a grab-bag. You want to transfer some mobile minutes back home? They'll set that up. Your bodega needs a cash register? Got it. You need it to be dirt cheap? OK, they'll bolt a customer-facing screen on it and subsidize the machine with advertising. You need help with payments? They'll handle that too. Your customers need to send money back to the family? Here's a remittance app. You know some friends who want to spin-up a virtual call center? IDT's got you.
IDT packages these things so that they're easy for their customers to find, use and tell their friends and family about.
Going
It’s an unusual offering. Parts of it are dying — the long-distance calling, mobile airtime transfers and wholesale long-distance. These businesses shrank 4% since last year. They also kicked-in most of IDT's revenue — about 70%. But that's down from about 75% last year.
This part of IDT makes investors shudder. Investors hate it because of its crappy product: long-distance traditional telecommunications services. This business will go away eventually, but in the meantime, it's still generating cash and that only shrank 1% since last year. It will continue to chip in cash as it fades away.
Coming
IDT's customers, however, are not crappy, nor are they fading away. They're thriving. IDT's retail partners outpaced US retail growth by 1.7% in the past year. IDT's network of payment terminals grew by 22%. Remittances from the US to Latin America and the Caribbean grew by 8% to $156b in 2023. IDT's number of those transactions grew 39%! Even its communication service added 11% more seats despite a slew of other potential options, boosted by a rich set of features tailored to IDT's unique customers.
Arrived
IDT's newer offerings turned a corner in 2024. They've left the investment phase. They're contributing cash back to the company rather than burning through it. Management has done good capital allocation stuff. They’re returning cash to shareholders. And the growthy parts of IDT are expanding their contribution. Fast. Cash coming in rose a neat 173% since last year from these businesses.
So far, growth and good capital allocation haven't swayed investors. Shares are up, but don't quite scream "this company is going places." IDT's customers continue to grow. With its offering of "whatever the customer wants," IDT helps them achieve that. It also makes IDT hard to dislodge. To switch, IDT's customers might have to cobble together a half dozen or so other vendors.
As customers expand, IDT's business will follow. As the market changes, IDT adapts to deliver more and more valuable services. What’s fallen behind is IDT’s share price. This offers investors an opportunity for promising returns of fast-growing, cash minting businesses at a price tied to an old-line dying one.
Disclaimer: None of this is investment advice. It's meant to illustrate ways LCM thinks about investing. Things that LCM decides are good investments for LCM and its clients are based on many criteria, not all of which are covered here. Some or all of LCM's ideas may not be suitable for other investors. LCM does not recommend investing either long or short any position mentioned. LCM may own positions in some of the companies mentioned. Some of its ideas will lose money — investing entails risk. See full disclaimer here.