Mark Evans

Good VoIP News for Vonage? Probably Not.

According to TeleGeography, VoIP's on a roll in the U.S. as the number of subscribers jumped 189% to 5.5 million by the end of the first quarter, compared with 1.9 million a year earlier. Telegraphy expects there will be 9.6 million customers by year-end and 23.7 million by 2010. Meanwhile, revenue is expected to climb to $2.6-billion in 2006 and $8.1-billion by 2010 compared with $1-billion in 2005. Telegeography does point out the $2.6-billion this year only accounts for 7% of total local and LD revenue in the U.S.
  So what does this data mean to Vonage, which has seen its stock drop 40% to $10.12 since its IPO debut? Likely nothing given the Vonage story is not about customer and revenue growth but profits. The big problem for Vonage is the cablecos are gaining more momentum with 57% of subscribers at the end of Q1 2006, up from 47% a year earlier. This means Vonage likely needs to maintain its aggressive marketing activity to remain competitive, which is not good news for anyone look for Vonage to make a profit or, at least, reduce its large losses.
  By the way, Vonage shares look like they will crack the $10 barrier (the wrong way, mind you!) pretty soon. It does raise the question about when Vonage becomes available as a takeover target. Its market cap is now $1.59 billion but what happens if the stock drops to $5 and Vonage can be picked up for $750 million? Does anyone go for it at that price?