What’s Going On With Vonage?

August 25th, 2009 by · 13 Comments

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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Categories: Mergers and Acquisitions · VoIP

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13 Comments So Far

  • Rob Powell says:

    $2.48 now after hours…

  • Anonymous says:

    Maybe it’s the new Vonage World plan (came out on Friday).. unlimited calls around the world for a flat $24.99 (it even includes calls to cell phones in many countries)… it should be much cheaper than any kind of local phone service or long distance via in-country provider… stunning deal…. Vonage now is really trying to become the global VOIP phone company

    • Rob Powell says:

      A new calling plan that is worth a bump this big? I doubt it.

    • Fred says:

      I’m not sure if the world plan caused the jump but being able to talk to family living outside the united states makes this new plan a no brainer.

      • Anonymous says:

        My guess is that a lot of these Vonage boxes will make their way out of the US. Someone in India, for example, could use Vonage to make all of domestic calls -i.e. within India, including cell phones- plus all international calls -USA, Europe, China, etc…- for a flat 24.99 fee.

        I know a lot of VOIP boxes end up outside of the US and in many countries you can find local dealers that will make the 24.99 payment in the US for a small fee. Vonage will not actively market them outside the US but will do very little (wink) to stop the flood of boxes leaving the country. It’s a way to get around local monopolies and at this price a very compelling one.

  • Alfred J. Beljan says:

    don’t know too much about their technical workings but they sure have a good product as we’ve used them in two state areas for 4+ years with NO problems – good company

  • Vonage always comes with new good plans.

  • VPG999 says:

    VG is running since the FCC is upholding Net Neutrality, no one is going to buy them, especially no Clearwire, this will just be an application offered for free to broadband subs over time, VG itself is a business plan under tremendous pressure.

  • Dave Rusin says:

    They are trying to catch up with MagicJack … the difference is call anywhere for a year on MagicJack for $19.95 – that is not a monthly number, that is for the year.

    Being a VOIP only provider is a hard, difficult business.

  • Momo trading. Nothing more.

  • Tom Fraser says:

    I can’t believe that all of you missed the most substantial reason for the jump in the interest of Vonage stock! China, India, and every other emerging market country is excited about worldwide long distance for one flat rate of $24.99. As Americans we have such an ignorant knowledge of numbers of citizens in other countries it is almost funny. While we report an average of 350 million people living, breathing and making phone calls within our borders, countries like China and India boast 10 times that number of citizens. Read the blogs . . . they are excited that they can speak to relatives around the world for a low monthly fee without additional charges. No one has even mentioned the impact this could have on businesses operating worldwide who incur huge monthly long distance bills through AT&T. Basically, who cares about the Apple IPhone application right now, it’s in the works and will eventually be News rather than a rumor.

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