Like a lot of stock fads that went bust, it would have been easy to write off the VOIP stocks as terminal failures.  Most lost money every quarter, and dozens of competitors sprung up as there were few barriers to entry.  Even leading VOIP companies like Vonage Holdings (NYSE:VG) and VocalTec (Nasdaq:CALL) looked like they might not survive.  But they did.

The business climate for these VOIP survivors is a lot less harsh — and it looks like investors are starting to take note.  Five trends that should help VOIP over the near term include:

1. less competition.  The telecom sector will always be competitive, but a few years ago there were literally dozens of new VOIP companies.  Most have fallen by the wayside.  Given the difficulty new companies have raising capital today, I expect the competitive environment to remain favorable for some time.  
2.  real branding and differentiation.  Today's winners are able to carve out a brand identity and do not compete on price alone.
3. better broadband adoption.  Only recently have most American consumers shifted to speeds that the rest of the world considers "broadband."  That helps VOIP quality, as do better software algorithms.  
4. help from the incumbents.  a few years ago it looked like AT&T / Verizon / Comcast were going to crush the independent VOIP companies with their own VOIP offerings.  Frankly, they blew it.  Those companies continued to offer the poor "service" they are known for, and many customers were only to happy to ditch them.  They also overpriced the VOIP offerings, usually selling them at only a slight discount to POTS (plain old telephone service).   That's not competitive, and it just reinforces the feeling that these utilities are out to take advantage of their customers.
5. integration with smartphones.  between iPhone/Android apps and femtocells, expect VOIP services to integrate far more with smartphones over the next two years than ever before.

Vonage Holdings (VG)

Any review of VOIP stocks has to begin with Vonage Holdings (VG).  From high flying concept stock to near-total flameout, Vonage investors have had quite a ride. I don't expect past multiples to return, but Vonage is up about 70% since March lows and looks like it is heading higher.  Operationally, Vonage is near breakeven, largely the result of deep cost cutting.  Customer acquisition costs and turnover (churn) remain problems, though they are somewhat less than in years past.  

VocalTec Communications (CALL)

VocalTec used to be known as a VOIP software company, selling the codecs and other software necessary to run a VOIP platform.  But now it will be known for MagicJack — the $19.95 gizmo that plugs a phone into a USB port and promises free service.  VocalTec and YMAX (the MagicJack company) will soon merge.  VocalTec has a nice cash hoard, is cash flow positive, and is buying back stock.  There is a lot to like about this combination, even if the upcoming MagicJack femtocell turns out to be a bust.  But there is also a lot of optimism baked into the stock, which has more than doubled over the last two weeks.

8 X 8 (EGHT)

8 x 8 has carved out a niche for itself by focusing on providing VOIP to small business customers.  That focus appears to be paying off.  8×8 recently announced record first quarter revenue, posting both GAAP income and positive cash flow.  Like VocalTec, 8×8 is buying back shares and has enough cash on the balance sheet to increase buybacks if the board decides to go in that direction.  8×8 does trade more richly than Vonage on most metrics, like enterprise value to sales, or enterprise value to EBITDA.  8×8 might deserve the premium, but its worth noting.

Bottom line: the VOIP niche is gaining traction.  I'm considering a "field bet" in these companies, letting the market sort out the winners and losers.  However, as of today I have not bought any.  Are there any other VOIP companies you think investors should consider?  Leave a comment.

DISCLOSURE:  No positions.

Was I smart or just lucky to pick up GlobalSCAPE (Amex:GSB) at around $1.50 and add major size at $1.30 over the last 2 months?  The answer is lucky, but I'll take it.  Not wanting to look a gift horse in the mouth, I also took profits at $2.57 this morning.

DISCLOSURE:  No position.

Looking for 2010 Russell Microcap Index reconstitution additions?

Here are the preliminary deletions from the 2010 Russell Microcap Index.  Those that exited due to a decrease in size will be without index support in virtually all cases, and might be worth examining for short-term index deletion plays.

Here are the preliminary additions to the Russell Microcap index.  Remember, a stock can get added to the index either because it was really small and became a little bigger over the last year, or because it was substantially larger and lost a lot of value.  Obviously, the former group is a far more fruitful place to look for investment prospects.