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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."
No link to Vonage?
Seriously, I'm really impressed by their success so far. Many of my non-geek friends and family are starting to use Vonage - it beats the heck out of SBC.
Something that frustrates me, though, is the apparent lack of VOIP for small businesses. I have a small company where my partner and I work from our home offices and on the road, about an hour away from each other. Every call is long distance. We're paying through the nose for our cell phones, which barely work in our houses anyway. Looking around, I've only found a handful of VOIP companies that are affordable, and most of them don't seem to be very helpful for my situation. We were talking about how cool it would be to set up an Asterisk box so we could have the voicemail, forwarding, etc. It's just not something I have time for.
The Vonage business service doesn't seem like much more than a residential+fax line. Another place I saw sent you a box you had to set up but it was pricy. It's like there's no in-between.
Anyone have a suggestion?
Considering the current backbone provider backlash against VOIP, Vonage (and others like them) could have a very short business life.
Talking to Geeks is like eating jello with a chainsaw, interesting, but painful.
Wow. Their marketing expenses totaled 93% of their net loss. I wonder how what their revenue and net loss would have been without all that marketing expense?.
Sounds like they aren't going to be able to maintain the all-you-can-use service for only $25 much longer.
Edward Burr
Having a smoking section in a restaurant is like having a peeing section in a swimming pool.
Shouldn't this be Vonage VOIPO? You need the right tone in the title. I mean come on!
Technically, the Tyco fiasco was only Kozlowski (former CEO), Swartz (former CFO), and Belnick (former chief legal officer). Essentially, they took out personal, no interest, loans from the company totalling $170m without informing shareholders. This was later written off as benefits which the benefits committee did not approve beforehand. (Although, I have my doubts about the possibility that $170m in personal loans would go unnoticed by other people within the company.)
In my opinion this is a questionable business decision at best. Vonage has all the earmarks of a mid 90's "bubble" company with a shaky at best business plan. Now, they go public on unstable ground and hire a person from Tyco as CEO. While he may not have contributed to the scandal at Tyco, anything associated with Tyco has, deserved or not, a bad reputation associated with it. This wouldn't be my first choice as hire if I was trying to convince potential stockholders to invest.
$sys$droids
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.
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.
Democrat delenda est
VoIP is cool stuff and can save you a bundle on your phone bills (if you make many long-distance calls). BUT make sure your internet connection is good enough for it. It's not just about throughput, you need low latency and low jitter as well. Anyway, try your connection out at http://testyourvoip.com/ a few different times of the day and make sure it is worth your time.
My Dad and a couple of co-workers have Vonage and they all love it. Unfortunately my DSL is pretty much at the limit of the distance from the local telephone CO so my line is not up as much as I want my phone to be... ah well.
-ben
To all the people who think that Skype and Google Talk are going to put Vonage out of business, you have to realize that Vonage isn't selling VOIP... they're selling Primary Line Replacement. Their customers expect their Vonage phone service to work exactly like their regular phone service, so they absolutely need to be able to terminate to PSTN, as many Vonage customers will be replacing their primary phone service with Vonage. This is why 911 was such a big deal for VOIP not that long ago... because for many VOIP customers, their VOIP phone line was going to be their ONLY phone line.
I work for a VOIP company, and I would say that the biggest threat is the big Telecoms that can squash VOIP either by messing with the packets that travel over their wires to destroy QoS, or by pushing the goverment to regulate VOIP out of business. Actually, this is one reason why the company I work for is glad that a big company like Vonage is around to look out for the interests of VOIP companies.
Vonage is bleeding money in marketing and practically giving away their service (including the VOIP devices that they give to their customers -- which I guarantee is not cheap), and it's questionable whether they'll ever be profitable, even if they tailor back their marketing efforts.
I would stay away from Vonage as an investment opportunity, for no other reason than VOIP is fighting an uphill battle against the telecoms. Even if VOIP can survive the war with the major telecoms, there are a lot of companies trying to break into this market, and Vonage may find themselves paving the way for another company to claim dominance over the VOIP world, especially if they can't find a way to make themselves profitable soon.