Tuesday, May 23, 2006

Vonage set to go public tomorrow - what's in store for them?

Vonage is set to go public tomorrow on NYSE raising around $500M. They should price later tonight. It is abold move by the leading US VOIP provider given the negative state of the US equity markets.

But, thanks to the size of the deal and the rise in popularity in Internet telephony, they should do fine tomorrow. Indeed Vonage should be OK for a while as the US VOIP market takes off and as their existing customer base of over 1.6M displays such low churn rates (around 2%).

Plus, Vonage today has over 60% of US VOIP users, which is a strong hold on a growth market that is set to top 15M users over the next few years. So short term prospects for Vonage look good, assuming you are OK with the amount of marketing money they need to spend and their continued losses.

It is beyond the next couple of years that concerns us more. For as VOIP becomes increasingly mainstream and competition hots up, I can't help feeling that Vonage will struggle if they are still an independent player, for the name of the game across all communications services will be bundling.

The leading telco's, cable companies and Internet companies will package VOIP with other services and discount it so heavily that Vonage may struggle. Probably the best option for them will be to sell out as international VOIP leader Skype have already. With Vonage's hold on their customer base some telco or cable outfit should get interested in them.

The question will be at what price - tomorrow will tell a great deal.

1 comment:

philip letts said...

Reuters have just announced that Vonage has priced their $530M IPO.

The 31.25 million share offering sold for $17 per share, at the midpoint of a $16 to $18 forecast.

That's a solid start.