For much of the past year, Vonage (NYSE:VG, news, filings) has slipped further and further out of the headlines as it struggled to refinance its debt and bring its costs into line. For six months, its stock price has languished in the $0.40 range. But out of nowhere, it closed at $0.60 yesterday, $1.59 today, and is at the moment trading at $1.84 after hours. The only news came last week when Vonage announced major enhancements to its international calling and voicemail services. As nice as that is for customers, if anything it expands costs without expanding revenue from a shareholder perspective and isn't worth such a breathtaking 300% move on its own.
So what gives? There are probably two main possibilities. The first is that it is just one of those technical moves, where the stock broke out of its range to $0.60 and has enough name recognition that when that flashed on traders screens it made everyone sit up and take notice. Take notice of what? Well, perhaps the fact that the company has been profitable for two quarters in a row but hasn't gotten any credit for it at all. Hmmm, that could be it I suppose, but the market hasn't been in the most forgiving mood for fallen tech companies showing signs of life, so I tend to doubt it.
I favor the second possibility, which is that there is a rumor somewhere out there that Vonage has found a buyer. The draconian cost controls and drive toward profitability and cashflow stability have been necessary but have obviously come at the cost of any growth of the business. We already know how much it costs Vonage to grow organically via advertising, and that's not likely to resume anytime soon. So where does Vonage go from here? A logical deduction is that by stabilizing the company, management has finally made it a viable buyout candidate.
What would they offer? Nothing more than a profitable customer base of 2.5M subscribers that have proven more loyal and resilient than most expected. To a buyer with real marketing power and a parallel business, that should be worth far more than the company's current valuation. The company's marketcap is even now under $300M, although I'm not sure of the exact enterprise value since some of the $240M in long term debt is convertible and in-the-money. Regardless, while the stock price has moved a lot, as a buyout price it doesn't seem unreasonable yet.
I could envision Sprint Nextel (NYSE:S, news, filings) doing a lot with it either directly or indirectly through clwr. The combination of a 4G wireless footprint with Vonage seems appealing, although the company's relationship with the cable MSOs for wholesale VoIP might get too sticky as a result. Any other candidates out there? Perhaps there would be interest from offshore by someone with perrenial US dreams like TMobile, SK Telecom, or even Telefonica (NYSE:TEF, news, filings).
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