Wednesday, May 24, 2006

Vonage Shares Fall 14%....I Warned Ya

Whoo hoo, whoo hoo hoo?

More like Boo Hoo Boo Hoo Hoo! LOL

Vonage shares dropped as much as fourteen percent as of mid-day on the first day of the company's IPO. Shares started the day at $17, and went down to around $15.23, up from a low of $14.49 (but were still dropping as I wrote this). One analyst told Reuters he believes the shares should have been priced at $10 or less. Vonage even admitted that theyhave been losing money and may never be a profitable company. The IPO did net the company $531 million.....but their reported pre-IPO debt (as of March 31) was reported as an accumulated deficit of $467.4 million! That means they've lost almost half a billion dollars on revenues of $430-450 million.

I about died when I read their own words [in their Prospectus] "we may not make any profits or gains in our current market due to marketing expenses, we believe in order to gain new subscribers to replace canceling ones, we must market heavily, and do not plan to reduce our expenses on this matter, we do plan to expand our campaigns". That was my red flag, and I laughed at everyone else who jumped on and bought stock in a sinking ship.

I know this company is not trying to raise the value of their public stock. They need the money (per their prospectus) to "market". Bad move right now to invest until they learn the hard way "it's not how much you advertise, it's all about how your customers are treated so you can retain your growth". Vonage has the worst ratings in customer service and tech support because of the outragous hold times at all times of day, and outsourcing of support. If they can keep the customer satisfied, their churn rate will drop, and less commercials will be needed.

I wouldn't hold out hope though. Vonage looks ripe for a takeover by one of the Baby Bells or maybe one of the Cablecos.....the buyer then folding the Vonage customers into their own existing VoIP customer stable. Makes sense.

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