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Vonage Falls Hard & Fast in Public Debut

Shares of the consumer VOIP player Vonage Holdings Corp. (NYSE: VG) began trading on Wall Street Wednesday and investors quickly discounted its status as a technology pioneer, focusing instead on the fact that the company is bleeding cash.

After opening at $17, Vonage shares fell about 12 percent to $14.94 as of 2 PM ET. (See Vonage Prices IPO.)

Skepticism over Vonage's business had been widespread leading up to the IPO, and appears to be bearing out in the company's stock price. (See US VOIP Revenues Triple.)

Holmdel, New Jersey-based Vonage has never had a profitable quarter and has said it expects its losses to continue. The firm spent $261.3 million on customer acquisition during 2005. Its revenues that year were $269.2 million and the company reported a loss of $73 million.

According to a May 23 SEC filing, Vonage's cumulative losses since launching in 2002 amount to $467.4 million as of March 31, 2006. Its debt was $253.4 million.

It also doesn't help that the company's founder and former CEO, Jeffrey Citron, has a tattered reputation on Wall Street. Citron, while affiliated with Datek Online Holdings Corp., an online brokerage firm, was accused by the SEC of participating "in an extensive fraudulent scheme involving improper use of the Nasdaq Stock Market's Small Order Execution System, or SOES," according to Vonage's earlier filings with the SEC.

"Mr. Citron and other individuals entered into settlements with the SEC in 2002 and 2003, which resulted in extensive fines, bans from future association with securities brokers or dealers and enjoinments against future violations of certain U.S. securities laws," the filings state. (See Vonage Appoints CEO, Chairman.)

Vonage, however, wants to focus on the future. The company hopes to convince investors that with broadband booming and Vonage subscriber numbers growing, the firm can't help but get in the way of some serious profits.

But the company is also facing strong competition and downward pricing pressure in the consumer VOIP space. The perceived worth of Vonage's service is being challenged by competing VOIP products from Internet companies which cost less, and in some cases cost nothing at all.

eBay Inc. (Nasdaq: EBAY) announced May 15 its Skype Ltd. service would feature free PSTN-connected calling to the U.S. and Canada until the end of the year and perhaps beyond. (See Analysts: Skype Freebie Is Defensive.) Time Warner Inc. (NYSE: TWX) division AOL recently announced it would give away free VOIP phone numbers for use with its new PSTN-connected IM-based Phoneline VOIP service. (See AOL Phoneline.)

As Vonage notes in its SEC filings: "Such competition or continued price decreases may require us to lower our prices to remain competitive, may result in reduced revenue, a loss of customers or a decrease in our subscriber line growth and may delay or prevent our future profitability."

Vonage set its share price in an Securities and Exchange Commission (SEC) filing after market close Tuesday. The company sold 31.25 million shares, or about 20 percent of the company, and has raised about $467 million, given its 2 PM share price. (See Vonage Targets $500M From IPO.)

— Mark Sullivan, Reporter, Light Reading

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geof hollingsworth 12/5/2012 | 3:53:10 AM
re: Vonage Falls Hard & Fast in Public Debut According to the email/letter the offer was to "thank" their customers... I wonder how thankful those customers that took them up on it are feeling right now.

This reminds me of a qoute from Liars Poker, the Michael Lewis book about Salomon Brothers, when the head trader said "Some people are just born customers." He didn't mean it in a good way.
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