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Vonage IPO Prices at $17; Stock to Start Trading Today
[May 24, 2006]

Vonage IPO Prices at $17; Stock to Start Trading Today


Executive Editor
 

Vonage (News - Alert) (News - Alert) Holdings, the nation’s leading VoIP service provider, has gone public with an initial public offering of 31.25 million shares at $17 – right at the mid-point of its estimated price range, raising more than half a billion dollars in working capital and essentially completing the exit strategy for the founders and early venture capital investors of the company.



 

The IPO comes after the unusual move to reserve 13.5 percent of the total offering for customers. As previously reported, customers were eligible to participate in the so-called “Directed Share Program” if certain eligibility requirements were met, including having been a Vonage customer from December 15, 2005, through February 1.


 

The offering also comes after Vonage management reportedly failed to come to terms to sell the company in a privately negotiated M&A transaction. With only 20 percent of the outstanding stock floated publicly through the IPO, it would still be impossible for any potential acquirer to take over the company without privately negotiating with investors and management.

 

Much has been said also about the company’s inflated marketing expenditures. However, as evidenced by the fact that the SEC declared Vonage’s S-1 effective, company officials were obviously able to persuade institutional investors to buy into its strategy to forgo profits by spending 136 percent of its first-quarter revenue in lieu of market share.

 

"The stock should be successful because many investors are looking for the next hot investment, but I am not sure how successful the company will be going forward since the big providers like cable television and telephone companies are also starting to offer VoIP as part of a bigger bundle of services than Vonage can offer. Vonage offers a voice phone service but the customer has to already have a high-speed Internet connection from someone else like their phone or cable television company," industry analyst Jeff Kagan commented in an email.

 

To be fair, Vonage’s marketing has arguably done more for the VoIP industry than the ad nauseam volume of analyst rhetoric from one research firm to another. “With the spotlight on IP communications it may be time for you to consider how VoIP can make your life easier as a small business,” VoIP industry blogger Rich Tehrani wrote. “In short, VoIP service can make the smallest company seem like the largest, and in the end that is invaluable.”

 

According to the SEC filing, Vonage officials, directors and certain investors are restricted from divesting their shares for a six-month period. But according to analysts like Kagan, the industry's landscape may be quite different even by then.

 

"The telecom industry is changing quickly. A year or two ago we looked at Vonage as the big provider of this alternative service, but we are now seeing the cable television and telephone companies offering a big bundle of services including VoIP," he said. "I think Vonage can be a winner, but I don't think it will be as big or successful as many think. But we will see how the industry continues to unfold."

 

The stock began trading on the New York Stock Exchange with “VG” as the ticker symbol.

 

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Robert Liu is Executive Editor at TMCnet. Previously, he was Executive Editor at Jupitermedia and has also written for CNN, A&E, Dow Jones and Bloomberg. For more articles, please visit Robert Liu's columnist page.


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