For anyone looking for a good Sunday afternoon read, Vonage's S-1 fits the bill. It offers some intriguing insight into the company's plan to raise as much as $646-million through an IPO. The positive news is Vonage now has more than 1.5 million customers who generate average revenue of $27.65 a month. The bad news is Vonage is still spending like crazy to attract new business. In the first-quarter, the company spent $88.3-million on marketing, which explains all those banner ads and television commercials. This led to a net loss of $72.5-million on sales of $118.8 million. For anyone who believes Vonage will suddenly turn off its marketing machine to reduce the red ink think again. In the S-1, Vonage said “in order to grow our revenue and customer base, we have chosen to increase our marketing expenditures significantly. We are pursuing growth, rather than profitability, in the near term to capitalize on the current expansion of the broadband and VoIP markets and enhance the future value of our company”. Translation: A huge chunk of the IPO proceeds will be spent on marketing campaigns. \The S-1 also includes a lengthy list of risks, including the fact “attracting customers away from their existing providers will be more difficult as the early adopter market becomes saturated and mainstream customers make up more of our target market.” Translation: There's lot of competition with more marketing muscle than Vonage. After Vonage completes IPO, co-founder Jeff Citron's 33% stake will be worth about $850-million, while Vonage's venture capital investors (Bain Capital, Meritech, New Enterprise and 3i) will see their $400-million investment suddenly be worth $1.12-billion. Bottom line: the IPO is a slam dunk for existing investors but far from compelling for new shareholders.
The Nortel Two-Step
Sometimes you wonder if Nortel can't win for trying. The company finally manages to convince itself its 2005 financial results are ready for public consumption (a positive development), then it goes and releases them late in the day on Friday after everyone's headed home for the weekend. (a negative development). From an optics perspective, it gives the impression that Nortel is trying to hide something because the only reason to issue a major press release late in the day on a Friday is if you want to avoid attention from investors and the media. Of course, Nortel will likely claim it received SEC clearance and/or that its paper work was completed Friday afternoon so it had no choice but to follow disclosure rules and release the financial results. Maybe this is true but this isn't the first time Nortel has utilized the Friday afternoon “trick” to release financial news. If Nortel – and CEO Mike Zafirovski - are at all interested in regaining the confidence of investors and analysts, they need to try to appear as if they are being as straightforward and transparent as possible. Issuing a press release to disclose financial results that should have come out a few months ago is not the way to do it.
A Real Live Microsoft Executive
Earlier this week at the Sympatico/MSN Digital Ad summit, I talked with Chris Dobson, who heads up MSN's international sales and marketing efforts. Maybe the most interesting part of the conversation was Dobson's willingness to frankly discuss Microsoft's strategic approach to the advertising market and the key trends within the online marketing world. This was a far cry from the typical read-off-the script “interviews” where senior executives talk but they don't say anything. It was refreshing to get perspective and context rather than a canned sales pitch. I figured Dobson had something to say when the first thing he said was “Microsoft has woken up to the fact online will not be a subscription world but an ad world”. This led to a discussion about how Windows Live will be a hybrid between ad-supported and fee-based content/services, and the balancing act facing companies with portals (AOL, Yahoo, Microsoft) at a time when user-generated content is becoming more popular. It was also interesting to hear Dobson's belief many ad agencies are still dealing with the Web in isolation rather than putting together coordinated campaigns with print, radio and television. Clearly, Microsoft is serious about the online ad market and trying to appear as advertiser-friendly as possible. At the very least, it was encouraging to run into a Microsoft executive willing to talk about what's happening as opposed to pontificating about the Microsoft Way.
Weekly Podcast
Click here for this week's podcast. (the updated and user-friendly version!)
NOTE: The sound quality of this podcast is terrible so we're going to re-do it on Monday. My apologies. If you're still interested in today's podcast, listen at your peril..:)
Another week, another podcast This week, Kevin and I talk about the Vonage IPO (what gives with that?!), the departure of Sun's Scott McNealy, the future of newspapers and the Canadian wireless sector.
Vonage IPO Plans: You're Joking, Right?
So Vonage thinks it's worth $2.6-billion? I wonder what kind of numbers their investment bankers crunched to come up with this pie-in-the-sky number? Vonage is a money-losing business that needs to spend heavily on marketing so it can continue to attract and retain consumers at a time when the cablecos and carriers are start to get more serious about the VoIP market. It strikes me as a desperate attempt by Vonage's investors, who have ponied up more than $400 million in venture capital, to get a decent return on their investment. Now, the $64,000 question is whether this deal will get done. Of course, it will because many institutional investors have no choice but to take a piece of this dodgy deal or risk getting cut out of the more attractive IPOs. I mean, if Corel Corp. – which “competes” against Microsoft in the office productivity market – was able to get its IPO out the door earlier this week, Vonage can do it too. If I was an investor, however, I wouldn't touch the Vonage IPO with a 10 foot pole. Caveat emptor!
Update: IP Democracy has a chart looking at Vonage's top line financials for the past 3+ years. For my post looking at Vonage's S-1 filing, click here.
Friday Morning Pot Pourri
It seemed like a busy week and there was a bunch of stuff I want to highlight:
- Skype now has more than 100 million registered users – nearly double since eBay blew its brains out to acquire Skype for US$4.1-billion. It's nice to see the Skype PR machine is alive and well.
- Not sure about the secret sauce behind Memeorandum but the mesh conference spent seven hours in the top spot yesterday. Hey, looks mesh is getting some more love today.
- a new Canadian-made vertical search engine called Eluta, which helps people find job announcements, will be officially launched next week. Nice, clean look – very Web 2.0-ish.
- Wired reports that researchers at the Carleton University in Ottawa are looking at the idea of a biometric security device that “users a person's thoughts to authenticate her or his identity”. No more passcards? Cool.
- With podcasting apparently becoming the New Radio, Frank Barnako suggests that podcasters such as Podtrac, Kiptronic and Rocketboom aren't seeing a lot of love from sponsors. According to Forrester, the mass audience will be there in four years; maybe advertising will follow along cautiously. Business 2.0 has a story that declares video blogs are booming and advertiers are starting to take not.
- My Nortel blog – All Nortel, All the Time – had record traffic yesterday. It could have been a post on Mike Zafirovski and/or a column in the National Post on whether Nortel should merge with Siemens' communications group.
- It's encouraging to see Toronto is awash in Web conferences these days. Aside from mesh, there was iSummit last month and the MSN/Sympatico Digital Ad event yesterday. Meanwhile, Kate Trgovac (a.ka. My Name is Kate) is busy working on a plan to bring BlogHer to Canada. I should also mention the thriving TorCamp/BarCamp activities.
