• 17 Oct 2007 at 12:33 PM
  • Vonage

Vonage Gives Itself Away

screwedcrackcharttoast.JPGIt’s been a while since we said anything at all about Vonage. Mostly because we were starting to feel like rubber-neckers staring at a car accident. And there was no-one left to convince that the company was screwed on crack, toast, over.
Well, apparently they still exist. But not in a money making way. This morning we spoke to a customer who recently attempted to cancel his service and discovered that Vonage is offering incredibly steep discounts to customers in order to avoid losing them. They are basically making Vonage free.
The deal this customer was offered was a $5 monthly plan, plus a $60 credit to his account. After we plugged this in to the DealBreaker Financial Modeling Device, we discovered that $60 is twelve times $5. Which means that Vonage is giving away a year of service in order to keep its customers.
How long can Vonage continue without customer revenue? How many customers are getting this discount? More importantly, if Vonage keeps losing customers, will they start paying people to use their service?

Vonage: Okay, Yeah, We Might Be Toast

screwedcrackcharttoast.JPGVonage warned yesterday that it’s troubles with Verizon have it teetering on the edge of bankruptcy, more or less prompting everyone in the world who doesn’t own stock in the company to say “we told you so.” Even as Vonage went public last year, skeptical observers and short sellers have been tearing into the company’s prospects. Until now, Vonage management’s statements have made it sound like they were born with rose-tinted glasses in their mouths.
Since the initial public offering, Vonage’s shares have dropped more than 80 percent. They are locked in a life-or-death patent infringement case against Verizon.
Over at the Motley Fool, Dave Mock greets the news with mock-shock and horror.

Absolutely stunned. That was my reaction to Internet telephony provider Vonageadmitting in its recent 10-K filing that it could be forced into bankruptcy at the behest of legal attacks from the likes of rival Verizon Communications. Who would have thought it could end like this?

We actually dropped Vonage, more or less, from DealBreaker commentary sometime last year. Our graphic–representing Vonage screwed on crack, toast, and in a freefall–was simply too cluttered to keep up with the company’s bad news.

Vonage 10-K
No Surprise From Vonage [Motley Fool]

  • 26 Mar 2007 at 11:58 AM
  • Vonage

Vonage Is Very Disappointed In You

Vonage’s chief executive, Mike Snyder, wants you to know that he’s very disappointed in your stupidity. How dare you sell his stock?

“The fact is we’ve been preparing for this verdict and the possibility of an injunction for months,” Snyder added. “For the market to react the way it did to the recent rulings shows an unfortunate lack of understanding of the judicial/appellate system, a lack of appreciation of Vonage’s resourcefulness, or, perhaps, both. Anyone who’s counting Vonage out is making a huge mistake.”

Vonage Comments on Recent Court Proceedings, Outlook for Appeal and Market Overreaction

  • 23 Mar 2007 at 4:05 PM
  • Vonage

Vonage: Screwed, Wrecked, Toast and Now Enjoined

screwedcrackcharttoast.JPGIf you can find one, go ahead and pick up a Vonage phone. That’s not a dial-tone you hear. It’s a flatline.
We’re not ones to gloat. Oh, wait. We totally are.
We’ve been talking about how Vonage is screwed for as long as we can remember. Even our Vonage graphic spells it out. It’s official description is “Vonage is screwed-on-crack, toasted, with share price dive-bombing.” (If our graphics guy wasn’t already drunk, we’d add a train-wreck to that picture today.) We wrote about the problems with this company so much that we had to impose a moratorium on ourselves.
This morning a judge slapped an injunction ordering Vonage not to let its customers make calls to standard phone lines, saying it’s voice over internet protocol infringed on Verizon’s intellectual property. There will be an appeal, of course. And the injunction doesn’t take place fo a couple of weeks. But the bottom all but dropped out of Vonage today, as the share price dropped 25%. It didn’t have far to fall, of course, so 25% means Vonage holders lost about a buck a share.
But here’s some good news Vonage investors: your can’t lose that much more than three more times!

Vonage Internet Calls to Phone Lines Blocked by Judge

screwedcrackcharttoast.JPGUnfortunately, he’s the CEO of the company so he would have to say that anyway.

  • 13 Sep 2006 at 9:43 AM
  • Vonage

Vonage Investors Get Letters Telling Them To Pay Up Or Else

screwedcrackcharttoast.JPGThe New York Times is reporting that brokerage firms are sending letters shaking down holdout Vonage investors who haven’t yet paid for their shares.

Vonage Holdings investors who have balked at paying for shares they bought in the company’s initial public offering, now worth less than half of the original price, began receiving letters this week from brokerage firms telling them to write a check or risk legal action.

We’re still not sure there is a practical way for Vonage or brokers to force these holdouts to pay. If there are a few customers who ordered lots of shares and haven’t paid, a lawsuit may make sense. But suing smaller investors probably isn’t worth the money that would be spent in litigation.
But what we really want is a copy of one of these letters. From our comments we know at least a couple of DealBreaker readers bought into the IPO. Did you get a letter? Send it our way. All personal details will be redacted and your identity will be kept confidential.
[Note: Need an explanation for our Vonage graphic? Click here.]
Vonage Buyers Told to Pay for Shares [New York Times]

  • 11 Sep 2006 at 11:37 AM
  • Vonage

Is Vonage Worthless?

screwedcrackcharttoast.JPGWe’re ending our moratorium on Vonage—there were only so many times we could say Vonage was screwed/on crack/toast—to bring to your attention Nickel Capital’s Mark Langner analysis arguing that “there is no value to VG equity as a stand alone entity and little value as a takeover target.”

The problem with Vonage is that its marginal customer creates negative value for the firm – i.e., the cost of customers acquired today is never recouped by the EBITDA that those customers generate before they churn off the network. This is exacerbated by the fact that this negative contribution is incrementally increasing with each new customer as the cost of reaching the marginal customer becomes more expensive over time (the easiest customers are found first). Finally, since VOIP has moved through the early adopter (meaning the easy customers have been found), there is no evidence that the trend that is driving the negative NPV will reverse itself at all, let alone move into positive territory before the company runs out of cash.

Of course, Langner’s short Vonage but if you think you need to be conflicted or self-serving to see that Vonage is screwed, consider this—whatever fancy tech name you give the service Vonage supplies—Voice-Over-IP—it is still basically delivering telephone landlines to customers. Do you really believe the future of telephony is in landlines?
The Short Case on Vonage: Why No Price is Cheap Enough [Seeking Alpha]

  • 13 Jul 2006 at 2:06 PM
  • Vonage

Is Vonage Still Screwed Despite Screwing Customer-Investors?

screwedcrackcharttoast.JPGWe mentioned it this morning, but now you can read Charlies Gasparino’s report on Vonage straight from the source. Shortly before 1 PM it got posted to the SquawkBlog. Charlie spells out a few additional points that are worth noting, especially the lack of any hard numbers.

Most analysts, however, are unimpressed. What is unclear is exactly how much money these customers have actually paid. Remember, the company set aside 13.5% of its IPO for its own customers. It’s unclear if the 60% to 70% represents all the customers who bought the shares -around 10,000-or the total amount of stock set aside in the DSP program. A company spokeswoman declined to provide more details until the release of second-quarter earnings, but its conceivable that most of the DSP remains uncollected even if most of the 10,000 participants paid up.
One thing is certain: Vonage’s problems go beyond its problems convincing customers to pay $17 a share for a stock now trading under $7. Competition is growing while the company loses money and patent disputes are eating into the company’s bottom line. Meanwhile, the company faces a number of class action lawsuits over its disastrous IPO. One lawsuit, filed by Motley Rice alleges, “both the Company [Vonage] and Company insiders…embarked on an illegal course of conduct to sell shares of the Company in a public market.”

And here’s another follow up question. Does the sixty to seventy percent figure reflect sixty to seventy percent of the shares bought by customers, or just sixty to seventy percent of customers ordering shares? If customers did not evenly buy shares, the two numbers could be very different. If six out of ten customers bought just a few hundred shares each, and the remaining four out of ten bought lots of shares, Vonage could still be left with a significant shortfall from its IPO.

Vonage: Sign Up…Pay Up?