Comments on: Vonage: Worst IPO Candidate This Year? http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/ A daily round table on the tech industry with experts and callers from all over the globe. Join us as we pick apart the news and get to the meat of what\'s happening out there. Mon, 08 Sep 2008 14:25:58 +0000 http://wordpress.org/?v=2.6 By: Clayton http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-183151 Clayton Fri, 30 Mar 2007 17:22:16 +0000 http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-183151 The end must be near. Search for "Vonage Domains" on eBay and you can get domains poised for Vonage's death... The end must be near. Search for “Vonage Domains” on eBay and you can get domains poised for Vonage’s death…

]]> By: “Master, It Lives!” Vonage IPO Set For Today? -- Alec Saunders .LOG http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-13076 “Master, It Lives!” Vonage IPO Set For Today? -- Alec Saunders .LOG Wed, 24 May 2006 11:10:15 +0000 http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-13076 [...] The number one entry on this blog for the last couple of months has been Vonage: Worst IPO Candidate This Year?.  I wrote that in March as I sat down to compose the Voice 2.0 industry view that I gave at VON Canada.  Well, word on the street is that the Vonage IPO is queued up for today.  Jon Arnold dropped me a note last night to say that he is set to be on Bloomberg Radio at 10 AM, and again on ROB-TV here in Canada at 3:15.  He will no doubt be tracking the events from his blog today.  [...] [...] The number one entry on this blog for the last couple of months has been Vonage: Worst IPO Candidate This Year?.  I wrote that in March as I sat down to compose the Voice 2.0 industry view that I gave at VON Canada.  Well, word on the street is that the Vonage IPO is queued up for today.  Jon Arnold dropped me a note last night to say that he is set to be on Bloomberg Radio at 10 AM, and again on ROB-TV here in Canada at 3:15.  He will no doubt be tracking the events from his blog today.  [...]

]]> By: Alec http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-9278 Alec Wed, 17 May 2006 12:04:18 +0000 http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-9278 Trever - I think the point about low overhead is in my original post. The cost basis to provide Vonage's service is lower than a traditional telco (although, not by much). Trever - I think the point about low overhead is in my original post. The cost basis to provide Vonage’s service is lower than a traditional telco (although, not by much).

]]> By: Steve http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-9254 Steve Wed, 17 May 2006 06:17:21 +0000 http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-9254 ..."It seems that the best hope for Vonage is that some entering the market might want to buy their market share. Unfortunately, I’ve seen no evidence that anyone is willing to pay the premium ($14 per $17 share) that they are requesting. It seems more like a $5 stock ($3 book value plus another $2 for market share)." I'm wondering where you came up with $5 stock (3/2)? At $2 per share for 1.4 mil customers, considering they are only offering 31 mil. shares with 155.7 mil outstanding--is my math correct in putting your customer valuation at about $44? That's almost 1/6 of what they are willing to spend per customer, putting market share stock value at about $11, not including anything for book, brand recognition and growth potential, I'd say their valuation is about correct. …”It seems that the best hope for Vonage is that some entering the market might want to buy their market share. Unfortunately, I’ve seen no evidence that anyone is willing to pay the premium ($14 per $17 share) that they are requesting. It seems more like a $5 stock ($3 book value plus another $2 for market share).”

I’m wondering where you came up with $5 stock (3/2)? At $2 per share for 1.4 mil customers, considering they are only offering 31 mil. shares with 155.7 mil outstanding–is my math correct in putting your customer valuation at about $44? That’s almost 1/6 of what they are willing to spend per customer, putting market share stock value at about $11, not including anything for book, brand recognition and growth potential, I’d say their valuation is about correct.

]]> By: Trever http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-8847 Trever Sat, 13 May 2006 04:12:16 +0000 http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-8847 The thing that the graph and none of the conversation really reflects is the fact that no matter how much people use the service, there isn't much overhead of a VoIP phonecall (cost wise). If someone places a local call, a long distance call or an international call, Vonage is only having to pay local LEC fees since everything is being routed over the internet. Not to mention the fact that as the Vonage customer base continues to grow, vonage-to-vonage customer calls will be placed that cost virtually nothing, if anything, to connect. The thing that the graph and none of the conversation really reflects is the fact that no matter how much people use the service, there isn’t much overhead of a VoIP phonecall (cost wise). If someone places a local call, a long distance call or an international call, Vonage is only having to pay local LEC fees since everything is being routed over the internet. Not to mention the fact that as the Vonage customer base continues to grow, vonage-to-vonage customer calls will be placed that cost virtually nothing, if anything, to connect.

]]> By: Matt http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-8449 Matt Tue, 09 May 2006 04:17:14 +0000 http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-8449 "Also, don’t forget that the advertising cost you’re mentioning ($250 million) will not increase proportionally to subscriber number increases," Actually, if you read their prospectus, advertising costs have done exactly that. In fact, since 2003, it's been getting worse. In 2002, marketing was $11 million and garnered revenue of $18 million; in 2005, marketing was $243 million and garnered revenue of $269 million. However, even if their marketing costs were 0, they would still have lost money (about $18 million). Their non-marketing costs are still higher than revenues. You are correct that eventually this will level off. However there is nothing to indicate when it will do so. Further, they continue to act as if they have not reached it. In the first quarter of 2006, marketing was $88 million; $33 million more than the first quarter of last year. In the prospectus, they say they will use the IPO money to continue running operating losses and to finance even more marketing. No talk of resting on their laurels and relying on word of mouth. It's also worth noting that Vonage is *already* the biggest purchaser of online advertising. If anything, the rational choice at this point would be to level off marketing. If they set marketing to 25% of current levels, their growth would be slower but so would their costs (there are non-marketing costs to growth as well). They would still be the biggest advertiser. Vonage also fails to show any reason why they would make money in the future. Do they have economies of scale? They seem to lose money on every customer (even without marketing). What's going to change? When is it going to start changing? It seems that the best hope for Vonage is that some entering the market might want to buy their market share. Unfortunately, I've seen no evidence that anyone is willing to pay the premium ($14 per $17 share) that they are requesting. It seems more like a $5 stock ($3 book value plus another $2 for market share). “Also, don’t forget that the advertising cost you’re mentioning ($250 million) will not increase proportionally to subscriber number increases,”

Actually, if you read their prospectus, advertising costs have done exactly that. In fact, since 2003, it’s been getting worse. In 2002, marketing was $11 million and garnered revenue of $18 million; in 2005, marketing was $243 million and garnered revenue of $269 million. However, even if their marketing costs were 0, they would still have lost money (about $18 million). Their non-marketing costs are still higher than revenues.

You are correct that eventually this will level off. However there is nothing to indicate when it will do so. Further, they continue to act as if they have not reached it. In the first quarter of 2006, marketing was $88 million; $33 million more than the first quarter of last year. In the prospectus, they say they will use the IPO money to continue running operating losses and to finance even more marketing. No talk of resting on their laurels and relying on word of mouth.

It’s also worth noting that Vonage is *already* the biggest purchaser of online advertising. If anything, the rational choice at this point would be to level off marketing. If they set marketing to 25% of current levels, their growth would be slower but so would their costs (there are non-marketing costs to growth as well). They would still be the biggest advertiser.

Vonage also fails to show any reason why they would make money in the future. Do they have economies of scale? They seem to lose money on every customer (even without marketing). What’s going to change? When is it going to start changing? It seems that the best hope for Vonage is that some entering the market might want to buy their market share. Unfortunately, I’ve seen no evidence that anyone is willing to pay the premium ($14 per $17 share) that they are requesting. It seems more like a $5 stock ($3 book value plus another $2 for market share).

]]> By: VoIP in Vancouver » Blog Archive » Another take on the Vonage IPO http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-5087 VoIP in Vancouver » Blog Archive » Another take on the Vonage IPO Tue, 11 Apr 2006 23:01:06 +0000 http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-5087 [...] Seems fellow Canadian Alec Saunders has put together an interesting post giving his take on the Vonage IPO or non-IPO deal. [...] [...] Seems fellow Canadian Alec Saunders has put together an interesting post giving his take on the Vonage IPO or non-IPO deal. [...]

]]> By: Dali http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-4739 Dali Mon, 03 Apr 2006 14:00:47 +0000 http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-4739 I think the $250 per customer can be recovered in 1-2 years as the revenue from one customer per year is about $250. Actually, per their word, Vonage has 1.5 million subscriber as of end of March. Also, don't forget that the advertising cost you're mentioning ($250 million) will not increase proportionally to subscriber number increases, or I would say will stay about the same even with 6 million customers. The word of mouth will play a decisive role here, I think. I think the $250 per customer can be recovered in 1-2 years as the revenue from one customer per year is about $250. Actually, per their word, Vonage has 1.5 million subscriber as of end of March. Also, don’t forget that the advertising cost you’re mentioning ($250 million) will not increase proportionally to subscriber number increases, or I would say will stay about the same even with 6 million customers. The word of mouth will play a decisive role here, I think.

]]> By: Brian Jerome http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-4722 Brian Jerome Sun, 02 Apr 2006 22:09:37 +0000 http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-4722 Vonage has already gone through approximately $250 Million plus, almost all of it on advertising. I have heard some estimates of $15 Million per week. They say they have approx. 1 Million customers. Taking them at their word, that equals $250USD per customer as an aquisition cost. They will never recover that. EVER. So all that money is basically gone, never to be seen again. VERY bad business decision. But hey, live and learn. At the end of the day, Vonage will probably go into bankruptcy and their customers will be looking for a new home. Asterisk is the way to go anyways, everything else is pretty much obsolete. With the availability of IAX2, SIP/h323 will be slowly phased out, making skype and vonage dinosaurs.......of course that is over time, but it is heading that way. Forget those guys, Mark Spencer is the genius. http://en.wikipedia.org/wiki/IAX http://www.asterisk.org Vonage has already gone through approximately $250 Million plus, almost all of it on advertising. I have heard some estimates of $15 Million per week. They say they have approx. 1 Million customers. Taking them at their word, that equals $250USD per customer as an aquisition cost. They will never recover that. EVER. So all that money is basically gone, never to be seen again. VERY bad business decision. But hey, live and learn. At the end of the day, Vonage will probably go into bankruptcy and their customers will be looking for a new home. Asterisk is the way to go anyways, everything else is pretty much obsolete. With the availability of IAX2, SIP/h323 will be slowly phased out, making skype and vonage dinosaurs…….of course that is over time, but it is heading that way. Forget those guys, Mark Spencer is the genius. http://en.wikipedia.org/wiki/IAX http://www.asterisk.org

]]> By: skibare http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-4713 skibare Sun, 02 Apr 2006 13:38:45 +0000 http://saunderslog.com/2006/03/30/vonage-worst-ipo-candidate-this-year/#comment-4713 Why buy vonage when you can get SunRocket for $17 per month??? Nobody is going to buy Vonage in their right minds Skibare Why buy vonage when you can get SunRocket for $17 per month??? Nobody is going to buy Vonage in their right minds
Skibare

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