Vonage IPO

May 24 2006

Everyone knows I love Vonage… so a lot of people have been asking me if I was going to participate in their IPO. Many where shocked to hear me say:

No.

Don’t get me wrong, as a customer, Vonage is awesome… there’s no other phone service I’d ever have. However, this is an investment decision and here’s why I was down on them:

  • With BIG competition like AT&T’s Call Vantage and Time Warner’s Digital phone – its going to be tough going for Vonage… for the incumbent carriers, VoIP is life or death for them… so they’re not going to down without a serious fight.
  • At about $17/share – Vonage is saying that they’re worth around $2.5billion. I don’t know about that – especially when you consider that Vonage has never turned a profit.
  • Don’t forget the whole Net Neutrality issue.
  • To me, its clear that Vonage is involving their customers in the IPO because they want to build excitement and demand for their stock… the problem is that 3 days before the closing of the “customer round” they sent out an email reminder that it was “closing soon” and that we’d better hurry up and get our money in… which sounds like they had problems getting people to sign up. So Econ 101 says that when there’s no demand, prices go down.

So what ended up happening? Lets go see…

Shares of Vonage Holdings (VG), the Internet telephone pioneer, dropped in their trading debut Wednesday after pricing late Tuesday at $17 a share, the middle of the expected range.
Shares of Vonage fell $2.31, or 13.6%, to $14.69 in late trading on the New York Stock Exchange.

Investors drop Internet phone pioneer Vonage

And my favorite:

“Internet phone service provider Vonage Holdings Corp.’s initial public offering encountered shareholder static Wednesday morning, and appeared headed for the worst IPO debut in two years.

Vonage IPO is a Train Wreck

Perhaps Buffett was right – maybe investing (or not investing) in things you understand the most is a good thing. πŸ™‚

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