Finally, A Vonage IPO
After much speculation, Vonage has finally filed to raise as much as $250-million through an initial public offering. The strange part of the announcement was that I initally saw the news about Tyco International executive Mike Snyder replacing Jeff Citron as CEO, which immediately caused to think it was a precursor for an IPO. The interesting part of the Vonage filing is it wants to use some of the proceeds to make acquisitions and make strategic investments. Does this mean Vonage will try to consolidate the market by going after 8×8, Sun Rocket, etc.? What's far more interesting is Vonage's finances and ownership information. For the nine months ended Sept. 30, 2005, the company posted a loss of $189.4-million on sales of $174-million. This includes $176.2-million of spending on marketing (that accounts for all those online banner ads) and $98-million SG&A. You have to wonder how much of an appetite there will be among investors for a company posting huge losses in a competitive marketplace? If Vonage manages to sell the IPO, Citron looks to make out like a bandit. He currently owns 41% of the common shares, which seems high given Vonage has raised $408-million of venture capital. One theory is he's been investing in each financing round. Other equity holders are Bain Capital (8%), Meritech (22%) and New Enterprise Associates (10%). Citron also owns 46.5% of the outstanding options - 1 million at $2.65 a share and 10 million at $3.15 a share.
Update: Russell Shaw warns that Vonage "better execute or else", which is putting it mildly, and provides a lengthy post on their strategy going forward. Meanwhile, Joseph Lazlo does a little number-crunching and talks about his bullishness about the VoIP market. I don't think he spends enough time looking at Vonage's huge losses and marketing expenses, which are far more important than churn and subscriber numbers.
Update: BusinessWeek's Olga Kharif has a story about Vonage's battle to stay competitive amid competition from cablecos, Google, Yahoo and Microsoft. It's just more evidence about how investors should be extremely cautious about investing in the IPO.
February 9th, 2006 at 10:55 am
Now that I can actually see that they are essentially running marketing spend at 100% of gross profit, I am feeling a little better about them spending that much. But only a *little* better. It's not 150% or 300%, which is good. But, if they are being forced to spend at that level to attract customers *now*, God help them down the road. Why? Well, once you start to see more action from the natural players in the space, the phone and cable companies (who also have a built in cost advantage if they want to play it), the big portal folks with a monster communicator install base already, and other new entrants with high expectations (I mean, unless you think eBay's buying Skype was just pure folly they *have * to be getting set to do something) it is going to become *more* expensive to attract customers, not less.
No wonder they are looking to IPO now…
– Stuart