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Vonage Vonage On Hold
By Rick Aristotle Munarriz (TMFBreakerRick)
July 3, 2006
Vonage On Hold
By Rick Aristotle Munarriz (TMFBreakerRick)
July 3, 2006
Some newsy tidbits beg for a little more color to make them tantalizing. For instance, take Citigroup's (NYSE: C) move this morning to issue a "Hold" rating on shares of Vonage (NYSE: VG) with an $11 price target.
There are two points in fleshing out this train wreck. The first is that Citigroup was one of the lead underwriters, handing over Vonage shares to new investors at $17 a pop just five weeks ago. The second point is that with the stock down to half its IPO price at the moment, the company's quiet period ended over the weekend and some battered investors were expecting good news from a chattier company.
Did I hold myself to just two points? Can I have another? Thanks. Point three, class action lawsuits are popping out like guppies, with some alluding to Vonage customers that were offered shares at the IPO but are refusing to pay for their purchases now that the stock has tanked and the company's viability is being questioned. A week after the IPO, Vonage issued a terse statement spelling out that buyers are obligated to pay for the stock they bought as part of the customer directed share program. Let's hope that its billing department never has to suffer that kind of problem.
I love it when companies offer their patrons a shot at a ground-floor opportunity. It empowers the individual investor. You have seen companies like Google (Nasdaq: GOOG) and Boston Beer (NYSE: SAM) do it. However, for every satisfied Samuel Adams sipper you have the Garden Botanika shopper and Vonage subscriber that gets burned. Ground floor? Yes, but the elevator is going down to the basement. That's a sticky situation because now you have upset your shareholders as well as your most faithful customers that believed in the cause enough to buy into the offering.
Vonage can't seem to catch a break these days. It's trying, though. As soon as eBay's (Nasdaq: EBAY) Skype announced that outgoing domestic calls would be free for the rest of the year, Vonage opened up its most popular $24.99 service to include free limited access to some European countries. Last week it introduced the sleek V-Phone, making its service portable with USB connectivity as a snazzy looking flash drive. Nice? Not so nice. It gets raked over as a "me too" product, overlapping some of the Skype functionality that is available for free when it comes to outgoing domestic calls.
When will the bleeding stop? It's hard to say. Every indication is that pricing will only get lower for VoIP, and that's a problem because Vonage isn't turning a profit at current prices.
Telco giant offerings like AT&T's (NYSE: T) CallVantage hadn't entered into price wars, but now you have Verizon (NYSE: VZ) slashing the price of its VoiceWing broadband phone service to just $24.95. VoiceWing doesn't include Europe, but Vonage is now facing pricing pressure from telephone and broadband heavies on the high end and the plethora of PC-based software providers like Skype that have limited functionality, but it's hard to argue against nil as a pricing strategy.
So, sure, it stings that even one of its underwriters feels that the IPO price that the market was willing pay in late May is out of whack with reality. Move on. Until Vonage officially cuts its price to $19.99 and presents a clear path to profitability at a lower price point, there may be some more unwelcome static in this connection.
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eBay is a current Stock Advisor recommendation, while AT&T is a former Stock Advisor recommendation.
Longtime Fool contributor Rick Munarriz admits to being impressed with Skype's free service. It saved him a bundle during his family vacation last month. He does not own shares in any of the companies mentioned in this article. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
Read The Full Thread: From the "Motley Fool"
Tazzo posted "Vonage On Hold
By Rick Aristotle Munarriz (TMFBreakerRick)
July 3, 2006" on 07/03/2006 |
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