Friday, May 26, 2006

Vonage's catch 22

CNET wrote an interesting piece today on 'Vonage future looks troubled'. Indeed poor old Vonage could not have had much worse a debut as a public company. On the first day their shares slumped 13% which is the worse first day performance of any company for 2 years. But then to make matters worse, on their second day (yesterday) they fell another 10% odd.

And the pundits are now betting that their stock will continue to fall into the single digits over the next few days. And more and more people are asking why Vonage went public at all. After all, they have huge losses, they are still a young company and the stock markets in general are in a mess right now.

Having been there myself and having pulled two IPO's of company's I was running at the time, I think I understand the Vonage catch 22. For the reality is that they had little choice but to go public, alomst whatever the circumstances. For the private markets would probably not sustain another offering large enough (they have already raised plenty of private money) and they need the money to keep dominating the market (and now fighting off increased competition).

For even though the timing may be bad from a stock market perepsctive, the timing is correct from a VOIP market perspective. The US VOIP market is taking off big time right now - and the market share battles will probably be won or lost this year and next. So Vonage have to raise the money now or risk losing considerable market share to Verizon, Time Warner, Comcast or Skype.

And if Vonage can only pull the stops out and execute superbly this year then they may even look cheap at the current prices. Some might argue that if Vonage do hit the single digits then that is the time to buy them. Could that include AT&T snapping them up? Let's see.

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