Consumer VoIP player Vonage Holdings Corp. worked feverishly to cast itself as the next Internet super stock, but investors hung up on the start-up's initial public offering this week. The Wall Street Journal noted Vonage's launch on the NASDAQ "marked the worst IPO debut in nearly two years." It is refreshing to see financial markets behave rationally.
Reading the Vonage prospectus back in February (see Vonage IPO: Lots of Style, Little Substance ) it was clear Vonage is a lemon, despite the company's Citron-flavored sugar coating. After opening at $17, Vonage shares fell to as low as $12.63, a 25% decline.
In yet another sign of the company's hubris, Vonage opted to trade under the symbol "VG", no doubt mimicking telecom titan Verizon (NYSE: VZ). Despite racking up nearly a half-billion dollars in cumulative losses in a mad dash to sign up customers, Vonage only counted 1.6 million lines in service at the end of Q1. That's not much of head start with MSOs now hot on their heels. Indeed, Time Warner Cable alone finished Q1 with more than 1.3 million IP phone customers (not lines). This is noteworthy considering Vonage is pitching its service to more than 50 million broadband customers in North America, while Time Warner is only selling its IP phone offering, which is priced more than 50% higher that Vonage, to 16 million homes in its footprint. Vonage claims it is the broadband industry's VoIP powerhouse, but investors know better. Talk is cheap.