Vonage IPO

mesowarny writes "The street writes: Vonage Holdings, moved to become the first major Internet telephony player to go public by filing Wednesday to raise up to $250 million via an initial offering of stock and named a Tyco International executive as CEO. Our revenues were $18.7million in 2003, $79.7million in 2004, and $174.0 million for the nine months ended Sept. 30, 2005," the company's prospectus says."While our revenues have grown rapidly, we have experienced increasing net losses, primarily driven by our increase in marketing expenses. From the period of inception through Sept.30, 2005, our cumulative net loss was $310 million. Our net loss for the nine months ended Sept.30, 2005, was $189.6million. During the same nine-month period, our marketing expenses were $176.3million."

Comments

this could be a dangerous IPO

[THEUBERGEEK]

Considering the current backbone provider backlash against VOIP, Vonage (and others like them) could have a very short business life.

enough already

[d34thm0nk3y]

While our revenues have grown rapidly, we have experienced increasing net losses, primarily driven by our increase in marketing expenses. From the period of inception through Sept.30, 2005, our cumulative net loss was $310

Maybe that is a clue. I swear there is a vonage commercial on every commercial break of any show I ever watch on cable.

That song from Kill Bill makes me cringe now when I hear it.

Same old story

[The evil non-flying]

"While our revenues have grown rapidly, we have experienced increasing net losses..."

I think I've seen this movie...I remember how it ends.

Re:marketing expenses a little excessive?

[Darkman, Walkin Dude]

No, you're missing the point. Marketing for a small and / or growing business is always the biggest expense. You have to get your name out there, get noticed, get people calling you. Marketing, if its done halfway right, is an investment, not an expense. The only conern I would have about Vonage is if they have foolishly invested in branding before they are a brand name (Coca Cola et al.).

Marketing expenses taken in perspective:

[Jim Logajan]

A few items to keep in mind with regard to Vonage's marketing expenses:

Vonage can cut way back on them without losing existing customers. They are not unavoidable operating expenses.

If a company intends to be as large as the incumbents, they'll need equivalent marketing - regardless of their current number of customers.

Vonage could "grow" its revenue so that its relatively fixed high-profile national marketing expense becomes a much smaller fraction of its expenses without reducing its actual marketing expenses a dime. Remember that the amortized cost for the first customer of a startup company that spent $100 million developing its products is $100 million per customer. If the customer growth is exponential while the marketing expenses are linear, the amortized cost declines rapidly with time.

The more important numbers to worry about are the operating costs per customer, not necessarily the acquisition cost for the earliest customers, which can be misleading.

Packet8...?

[nathana]

The blurb mentioned that Vonage is the first Internet Telephony player to go public, but I happen to know that Packet8 is publicly traded...

Don't like the idea, investment wise

[jmorris42]

Just don't like the idea of dropping money into VoIP companies.

Short term they are bleeding rectally trying to grow marketshare above all other considerations while the telcos are trying to stamp them out of existance and national governments worldwide want to outlaw VoIP as undesirable competition to the local monopolies and the huge tariff structures they currently reap buttloads of juicy tax money from foreigners off of.

Longterm, assuming VoIP in general and any one particular VoIP company survives the shortterm, they face the problem of becoming unneeded. Everyone seems to be missing the big picture here, a VoIP provider gives you two things.

1. Point of presence, i.e. a phone number. Google Chat (i.e. Jabber) can do that part equally well and for zero dollars. Plus as IP6 begins to roll out and dynamic IP & NAT goes away we return to the original Internet where every host has an address, read that as a telephone number/hostname.

2. An interface to the legacy telco network. If VoIP becomes universal that service becomes far less valuable.

So longterm the value add a company like Vonage provides drops drastically and thus their net per customer will be on a similar decline to the current fade to zero valuation currently on the accounting books for the existing long distance businesses.

Re:Don't like the idea, investment wise

[Anonymous Coward]

That might be true, if Vonage was doomed to offer exactly the same service they do today, for the entire life of the company.

Fortunately, Vonage also has a bunch of employees, and (hopefully) are working on other projects.

Joel Spolsky says "the goal is not to solve some specific problem, but to be able to convert money to code through programmers". Paul Graham says "What matters is not ideas, but the people who have them. Good people can fix bad ideas, but good ideas can't save bad people." One of the Zope people described the decision to open-source Zope by saying "This is not the last innovation we'll make".

If you're judging a company by its initial product, you're not judging the company, you're judging the product. Look at the first products of many of today's companies. Few are in business with their first product, or even an updated version of it. (Would you have invested in Ole Kirk's wooden toys?)

If VOIP does take off, there's plenty more than just those two services that they can provide. As a really simple example, suppose you're president of BigCo, and decide that switching to a VOIP phone on 120,000 desks will save you money. Where are you going to find a decent-sized group of engineers with VOIP expertise to pull it off? I can think of a place...

But that's simply a direct application of their skills. Google took a great search engine, and built webmail, a chat system, and great 3d mapping tool. Who'd have guessed?

If you knew their people, you might have. All it takes is people. Their existing technology is just a red herring.

Vonage is in a dead-end business.

[massysett]

I am not surprised that Vonage wants to do an IPO. It's Citron's chance to take his money and run. The heads of the company must realize they're in a dead-end business. Vonage will get squeezed on both ends in the market they're in now (Internet-to-POTS calls.) Already Vonage is not the price leader in this arena, so people looking for a bargain will go cheaper. Plus, the Bells and the cable companies will eat Vonage alive, with their bigger marketing budgets and their ability to stuff flyers in millions of monthly bills. Not to mention the Bells and cable companies' ability to do underhanded things with QoS and whatnot.

Then there are the up-and-comers, like Skype. That's the future of VoIP. Skype is already a better deal than Vonage, and without one-year lock-in contracts. Skype's costs are likely lower too.

That's why I figured Vonage's strategy is to go IPO, or sell the company. Vonage has been sitting still. They have not been adding any new features to their service--such as a simple, "do-not-disturb" feature that AT&T has. Come on, it's an electronic network! The cost of adding new features must be minimal.

Plus, the quality of Vonage's service is absolutely abysmal. If Vonage works, great. If it doesn't work, good luck--they will screw you. I have personal experience here. No wonder they've registered vonagesucks.com.

I now pay over $40 a month for a Verizon landline, rather than a Vonage phone, and I'd much rather give my money to Verizon. However there are probably investors dumb enough to buy Vonage IPO stock.