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Holy Smokes, Vonage goes for an IPO

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Multiple sources including The Daily Deal and The Wall Street Journal are reporting that Vonage is about to file for an initial public offering and is hoping to raise between $400 and $600 million. The Daily Deal has the scoop.

According to sources, it’s possible that Vonage might pursue a dual-track process, allowing it to explore a potential merger as well as an IPO. If Vonage goes the IPO route, it would likely use the money the same way it used the proceeds from its previous rounds of funding: to expand its network in the U.S., Canada and overseas.

Dual track process? Now that’s interesting! I get a feeling, that it might be a one-track process – IPO because of the greater fool theory – because not many buyers out there who can pay enough money to give investors (read VCs) a decent return on investment.

Lots of questions in my mind, which will hopefully clear up soon. Just doing the numbers – Vonage has raised $400 million, and with $600 million in IPO proceeds, that’s a whopping $1 billion. Not bad for a company that has shade less than a million customers. So investors in the company are tentatively valuing each Vonage customer at about $1000 – or about 40 months of revenues.

I find the timing of this news pretty interesting! There is clearly lots of competition, including cable companies which are just cranking their sales machine and pushing VoIP like crazy. Skype, Yahoo, Microsoft and Google’s Voice-over-IM offerings are going to put some if not a lot of deflationary pressure on the prices. Price pressure is going to be rampant. Good time, to re-read my Telecom Death Spiral essay. And that’s not even taking into account some of the problems incumbents can create for all indy-VoIP people (without risking the ire of FCC, of course!)

In other words, for Vonage, if not now, then never is the only option. The deal is going to be led by Deutsche Bank Securities, Citigroup Global Securities and UBS. Interesting to note – both Morgan Stanley and Goldman Sachs are missing from the party. Why? Morgan is the banker for Skype, while Goldman is a banker for Google. Never mind that the Bells are not going to take this too kindly, and future banking relationships could be strained.

PS: Personally, their S-1 filing is going to be great reading.

18 Responses to “Holy Smokes, Vonage goes for an IPO”

  1. poison

    Man I am somewhat confused. I got my IPO conditional offer letter in the mail yesterday. They are offering their existing customers (of over a year, and with other certain requirements as previously mentioned in this thread) an “opportunity to invest” in Vonage. The $ isn’t what really bothers me, what bothers me is that they are now turning to their customers for investment…is this a sucker bet? is this a good bet? the fact remains it seems to be too much of a bet.
    Should I go in for a couple of grand, and see if it goes anywhere, and then spend my days watching it like a hawk…or just walk away from the pig in lipstick?

  2. Moonpoint

    As an existing vonage customer, I got an offer for IPO shares
    this morning. But my surprise didn’t last long, as I read the fine
    print further that I have to a US citizen. Clearly they didn’t ask the
    citizenship question when I took the service in early 2004.

    Accrording to some previous posts, each customer is valued at

    Well, you can discount that valuation by $2000, I am voting with my wallet, I am discontinuing my service. There are plenty of
    alternatives now…

  3. As a new Vonage Customer, I can’t tell you the relief I felt once I switched away from the big Bell. I would have switched to save $10/month, but I’m actually saving closer to $50!

    It was quite a roll-reversal to have an actual PERSON from the Bell CALL ME and BEG for my business back. I think not.

    Of course, they also threatened to increase the rate on my broadband service, whereby I got the privilege to remind THEM that I had a 2-yr broadband contract and it wasn’t open to negotiation for quite some time.

    Good-bye and Good-Riddance

    God Bless the Free Market Economy…now if we could just convince the Government to stop bailing out the airlines…

  4. Investors value Vonage customers a lot higher than 1000 USD.
    External investors may have put into Vonage around 1000 USD of cash per customer, but same investors do not own 100 % of the company. An IPO at 1,5 bill $ (pre-money) value each Vonage customer at 2OOO $.

  5. Charlie Sierra

    Certainly I agree that the Bells view VoIP as PITA, but the reason PCS hasn’t bundled VoIP is because they’ve yet to spinout their own local ops, and frankly they want to lock in the MSOs before doing their own thing.

    I mean look at what they’re doing to poor ole ESPN Mobile. NASCAR, NFL, hello MLB??? I think the MVNO fad will be coming to an end pretty quickly, I mean its already served its purpose.

    Dealing with the phone companies is dealing with the devil.

  6. Jesse Kopelman

    Charlie, you caught me. I wasn’t thinking of Sprint as a pure wireless play. As for your T-Mobile comment, I’ve been saying the same for a while. I think the problem with the big players (Bells, Pure Wireless, Cable Cos) is that they see VoIP more as a threat than an oportunity. To them, business as usual is priority #1 — higher than thinking about the future.

  7. Charlie Sierra

    Ah, Jesse, Sextel (S) is a public national wireless company.

    The near term lesson of the VoIP flameout is that you need a powerful value proposition.

    Simply being a little cheaper than the hated Bells is not big enough. Nobody has put forward a really insightful business model.

    I do think the marketplace is growing more receptive, but the players are still not convinced the stars are in alignment.

    Om, why aren’t the good folks over at T-Mobile USA pushing a VoIP component with their wireless plans? Its a cheap ARPU boost, think of all those broadband rich college kids. I mean how are going to call the beer store to reserve that kegger for the weekend…

    Voice still generates more $$$ than data.

  8. Jesse Kopelman

    Actually, I think the Bells love this news. It is very hard to run a telecom as a growth stock, as investors have little patience when it comes time to spend money on upgrading the network and ARPU declines and user growth stalls. There is a reason there are no public national wireless cos in the US (now that Nextel is no more).