IP Democracy: Vonage Conjures Up A Half Billion Dollars

The business and tech press is awash in articles today about how Vonage’s stock is seemingly sinking on the heels of its over-subscribed IPO. It’s big news and everybody is portraying the IPO as a flop. Vonage, which debuted at $17/share, closed today at $14.85, down 13%, a disappointing slide for an Internet IPO.

Business Week’s Timothy Mullaney has this article that starts out “What we’re they thinking?” Andy Kessler has this item entitled “Vonage Sucker Punch.”

The list of articles goes on and on. My favorite, though, is CNET’s Marguerite Reardon’s write-up of the stock’s fall. Marguerite offers this tentative reason why the stock is sinking: “The dip could indicate that investors are wary of the company’s future prospects.”

Hmm…ya think? That’s usually why stocks dip…in fact, it’s almost invariably why stocks dip. Investors don’t like the prospects of the company offering the stock.

In the case of Vonage, those prospects are indeed dim…right now. The company offers a technology that is easily replicated. It faces big-gun competition from cable operators, phone companies, eBay, you name it. Making matters worse, Vonage is losing money hand-over-fist and doesn’t really have a believable path to profitability.

But my guess is that Vonage executives are popping open the champagne bottles and riding a big high. Why? Because Vonage’s coffers are now stuffed with $531 million that the company didn’t have on Monday.

How many of us can say that? Who knows what Vonage will do with that cash, but they have it and can play around with it and come up with new ideas, new plans, new partnerships or even form new companies in a non-VoIP arena. They could even squander the money. The important point is: Vonage has managed to get its hands on a boat-load of new money.

No one seems to be writing that piece — the one about how Vonage just conjured up $500 billion. This Reuters article, however, quotes one Wall Street expert who seems surprised that the company could pull something like this off.

“It’s a wildly unprofitable company still selling at a very high valuation,” said Tom Taulli of Newport Coast, California, an IPO analyst and author of “Investing in IPOs.” He said he was surprised the company had managed to raise half a billion dollars through the IPO. “That’s not an easy thing to do in this market,” he said.

Posted by Cynthia Brumfield on May 24, 2006 6:37 PM to IP Democracy