Mark Evans

How Low Can Vonage Go?

After being hit with an injunction last week that prevents it from using VoIP technology owned by Verizon, Vonage shares plunged a record low of $2.98 on Friday before bouncing back to $3.37 today. Since its 17-a-share IPO, Vonage has dropped a staggering 80%. The obvious question is when does Vonage start to represent good value to investors and/or good acquisition material for someone looking to instantly add 2.2-million subscribers.

For investors, the question of value comes down to assessing whether Vonage can maintain its subscriber momentum amid increasingly fierce competition; whether it can keep more of its existing customers, which would allow it to dial back the dollars spent on marketing; and whether it can shrink its losses.

In many ways, Vonage is running in a marathon, and it can’t afford to stop spending if it wants to build a big enough subscriber base to establish a solid foothold. If Vonage decides to spent less on marketing, the cablecos will start to eat its lunch - which explains why Vonage is all over the NCAA basketball tournament, for example. At the very least, Vonage needs to keep pushing forward even if it runs into pesky hurdles such as injunctions, a stock heading south, large losses and a troubling churn rate.

In terms of the injunction, Vonage said the market is over-reacting (really, does anyone expect them to say otherwise?). In breaking the rule never to paraphrase Mark Twain in a press release, Vonage CEO Mike Snyder paraphrased Mark Twain by saying “the rumors of Vonage’s death have been greatly exaggerated. Friday’s events represented one small step in what is sure to be a long legal battle.”

Technorati Tags: Vonage