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Summary:

The Vonage IPO and post IPO saga is getting stranger by the day – in a way that could get them a direct nomination for Business 2.0’s Dumbest 101 Things list that comes out at the end of the calendar year. On paper it seemed like […]

The Vonage IPO and post IPO saga is getting stranger by the day – in a way that could get them a direct nomination for Business 2.0’s Dumbest 101 Things list that comes out at the end of the calendar year. On paper it seemed like such a good idea – customers, the biggest evangelists for Vonage would get to participate in the upside in the stock if they invested in the company as well. In fact they left aside the 15% of the 31.25 million shares the company was offering to the public.

Well, that was really optimistic. Still, about 10,000 Vonage customers took the bait and bought the shares at $17 a share. The stock, as predicted tanked, and well, some of the customers who saw their cash simply evaporate decided that they were not really interested in the stock.

So Vonage has to make the bankers whole, and pay for those shares. Now other customers who paid for the stock are upset that they got cheated and are clamoring for a buyback.
Okay so this can be fixed with cash, but what happens when this stock-fall leads of a customer exodus. Someone who has lost money on the stock isn’t likely to be a loyal customer for long?

The problem is that the worst might not be over for the stock. In a snap poll of GigaOM readers, we found that nearly 63% expect the stock to go below $10 and about 27% who voted thought that the stock is going to skid below the $5 mark. Okay, so perhaps that’s not scientific, but the trend line calls for pain.

  1. If you want to make money off companies like Vonage, invest in the companies that make the terminal adapters, VoIP phones, etc (e.g. PhoneGnome). They’ll work with any provider, so by betting on them, you’re not betting on a retail sales strategy, which is more like gambling these days.

    IMHO, I always thought Vonage was a cockroach stock, 100s of millions of VC funding, top heavy management, mediocre product, long-term competitive disadvantage re: cable companies, etc. I don’t what else people thought was going to happen.

    Nice to see the ruse exposed so quickly. Usually these types of companies manage to perpetuate the “story” (read: lie) long enough for the insiders to dump their stock onto unsuspecting rubes.

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  2. Om on Vonage…

    Om predicts bad things for Vonage – His readers agree. Does this make Vonage a good buying opportunity? After all, the company has so many seasoned Wall Street veterans in its ranks. Do they know something we don’t? Time will…

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  3. nice post :) u had to see this one coming

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  4. Wait until the SEC steps in (I predict by Monday) and makes them rescind the whole deal, ouch!!!! No way are they going to get away with letting only certain people welch on the deal.

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  5. In your snap poll only 36% said that it would go below $10. You transposed the numbers in your post.

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  6. Update…

    Vonage is now refusing to buy back shares or subsidize losses to Vonage customers. IPO plan for customers backfires.

    http://biz.yahoo.com/rb/060531/telecoms_vonage.html?.v=5

    This is getting very ugly; a marketing fiasco.

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  7. OH Here it comes… Now that Vonage customers LOST money on the IPO I can see The Vonage commercials of “Stupid things people do” coming soon.

    Various shoots I have thought of, A man flushing money down the toilet, Another Man Giving money to his Wife, only to find that she used the money on buying a gift for her boyfriend :), Another man putting money in his mattress and then coming home from work and seeing smoke in the sky and finding his house on fire.

    Oh yes… The stupid things people do…

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  8. who-whoooo-who-who-who…

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  9. Hmmm… What’s the documentation for “very angry customers”? That the stock went down? Is it written that buying stock in an initial public offering is a guarantee for making money? I thought we lived in a free economy that entails both the potential for making AND losing money. And I thought that, generally speaking, initial public offerings were considered THE riskiest shares to buy? Would you like Congress to guarantee that shares offered initially to the public be guaranteed to make money for those who buy the shares?

    I bought shares in the directed share program. The risks of buying shares were very clearly articulated through the process. I was not allowed to buy shares in the program without repeatedly acknowledging that I had read the prospectus and understood the risks of buying shares in the program.

    The value of my shares have declined in the first two weeks of trading, from the $17 to the ~$12 now. I got to buy the shares because I have been a customer of Vonage since at least December 2005: meaning I am a HAPPY customer, one who continues to renew and does not have any issues with the price I am paying or the service I am getting in return for that service.

    What is it about Vonage that leads you to rant in such an unwarranted fashion because the market prices the company lower than the shares were offered at? What is it about the IPO process that leads you to think that a company that underprices its shares is so much better than one that overprices its shares?

    I’m a whole lot more interested in what the value of the shares will be in one year or two years or even 10 years. That will say a lot more about the real value that Vonage has created (or not) over time.

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  10. I have tried their service twice over the last couple of years and both the times had to abandon it – due to poor quality and poor customer service.
    First time I tried it for my home. Next time, against my oposition, some of my company colleagues convinced me to give it a try for our startup. Bad idea. It was poor quality throughout.
    I’ve had AT&T VOIP at home for couple of years – works like a charm.
    Looks like the word is getting around (reflected in their stock price).

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