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Anybody Taking a Look at the Fundamentals of Net2Phone and IDT?

Also, the world according to our friend Gary B. Smith.

Pumpers and dumpers are having a field day, no doubt, with the stocks of






. Like the old days of the Internet, at the expense, no doubt, of the little guy who will almost certainly get walloped. Anything, and I mean


that goes up that quickly -- on a relatively small float -- almost always falls just as quickly, if not faster, after this kind of buying frenzy. Yesterday the stock zoomed 32% to 70 1/8, giving it a market value of more than $3 billion.

This will surely go down as yet another case of investors not fully understanding what they're buying. The evidence is clear by the recent action in Net2Phone. As I pointed out

yesterday in a midday "Herb on TheStreet Extra," anybody who really likes Net2Phone would be better off owning IDT, because of its 57% stake in Net2Phone and its steep discount to Net2Phone.

That, of course, prompted some readers to wonder whether I was "eating crow" or "throwing in the towel" on past items here that were

critical of IDT.

You kidding? The Net2Phone spinoff itself is just the latest questionable transaction involving IDT. Among the biggest winners in the deal are IDT insiders. According to Net2Phone's prospectus, Net2Phone has agreed to pay IDT $6 million for a 20-year right to use part of a new high-capacity network still under construction. (An example of why this is good for IDT.) What's more, as the company says in its prospectus, they have lots of competition for their services and products, including some from large, well-known, deep-pocketed companies. And if prices of long-distance service continue to fall, Net2Phone warns that it may lose its competitive pricing advantage for long-distance calls. Already some Internet telephone companies are undercutting Net2Phone in the U.S.

, for example, charges 3.9 cents per minute vs. 4.9 cents for Net2Phone on domestic calls except for Alaska and Hawaii.

Then there's the quality issue: As I noted yesterday, the quality of the actual phone calls over the Internet, from a PC, is nothing to write (or call) home about. Calls made several times to me from a friend over the course of the past month using Net2Phone's Internet telephone service were unintelligible. Admittedly, mine is a small sampling. And then there is reader

Hazem El-Abbadi

. He uses the service frequently for overseas calls, and writes: "The main problem I've found is not the voice quality but a delay between the time one person says something and the other person hears it. This varies from a couple of seconds to about a half a minute. That is where the real annoyance comes in."

Finally, in its prospectus, Net2Phone, which had sales of $22 million for the nine months ending April 30, and no profits, warns that

U S West





have asked the


to institute federal access charges for Internet phone calls. The company says many of its competitors are lobbying for the change. If that happens, Net2Phone warns that its business could be "materially" affected. Boilerplate, sure, but some analysts believe this is a





Joe Kernen yesterday told his viewers that on Tuesday officials from IDT called him, pointing out that they believed their stock deserved to be substantially higher with Net2Phone on such a tear. (Assuming someone from IDT really made the call: They had to say


because Net2Phone's investors certainly don't have a clue.)

Blown to Smith-ereens


Gary B. Smith


Yesterday's "technical" take on several of this column's recent hits was, as usual, masterful. Hope to see more of his touch on my column, though we all know that regardless of what the charts may show, in the end, the fundamentals win out.

Herb Greenberg writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.