Vonage IPO disaster

Vonage went to market last week with its much waited IPO, but its share price instantly plunged from $17 at the launch to $14.8 at the end of the day and down to $12.6 on Friday. As a result, Vonage saw its capitalization dropping to $2bn, down almost $680m or 25% from its theoretically value at IPO price. The company raised $531m in the IPO and sold, in 12/05, $250m of senior unsecured convertible notes due 2010 to be added to $395m that investors had put into the company. But Vonage has lost $310m since being founded and is running on a $60m loss per quarter. That means, all conditions being equal, that Vonage has a life span of about one year. We hope it will start making profit in the mean time.

Why this disaster, when everybody was expecting a grand display of fireworks for the VOIP market. It is obvious that investors are not on the same line as professionals. There is there a reluctance to see VOIP as as a viable standalone business. It is more likely seen as an inescapable piece of the next generation services. It is an alert to pure VOIP providers.