Vonage IPO Questioned

With Skype hogging the limelight, it is easy to forget about Vonage and its pending IPO plans. Vonage, which just hit the million-customer mark, is planning to raise $600 million in an eagerly awaited initial public offering. BusinessWeek, has a very sober assessment of Vonage’s offering, and company’s longterm prospects.

Vonage “can go public in almost any type of equity market,” says Tim Walsh of investment bank Lane Berry, who adds such an IPO “ought to be well received.”…. Time for an IPO may be of the essence. If Vonage waits to go public and its market position erodes further, the share sale may not catch on. There are industry rumblings that Vonage execs were unsuccessful in a bid to sell the company — the preferred exit strategy for its backers. “Vonage is very vulnerable,” says Tom Taulli, an analyst with investment bank Instream Partners.

The article notes that during 2004, Vonage’s share of the VoIP market slid from 61% to less than 30% of subscribers, despite a sharp increase in the overall number of consumer VoIP users. The good news for Vonage is that some of its lesser rivals – Broadvoice and Sunrocket for instance – are either imploding or facing consumer ire because of poor service. Vonage has issues of its own. But none bigger than the ever increasing threat of cable providers, and the Bells, along with other pesky upstarts, and an increasingly unfriendly FCC makes sure that future is not all that bright for Vonage.

Vonage sponsors MTV’s popular reality show The Real World. But as is the case on the MTV show, things can get ugly fast in a crowded house. The same can be said of a crowded market.