Is Vonage Worthless?

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We’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]

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