Blog Post

Will SkypeFree KO Vonage IPO?

By Andy Kessler

This is a classic high stakes Wall Street sucker punch.

The buzz on the Street is that the Vonage IPO is on the rocks. They HAVE to raise money or they are in a world of hurt. Their investors don’t want to put another penny in and the company seems to still be bleeding cash, $75 million in the first quarter of 2006. Geez, Vonage is begging customers to buy 20% of the deal – not a great sign.

Ebay knows this, why not toy with the mouse before you kill it. What better way to do away with the Vonage IPO and raise their cost of capital then scare investors even more. Every prospective buyer on this deal asking the same questions: what about pricing, why will anyone pay a flat fee per month when skype connects in the US for 2 cents a minute. $25 per month to Vonage is the equivalent of 1250 minutes.

At Skypeout = zero, its infinite minutes. The value of what Vonage provides has just gone from $25 per month to somewhere close to $0, goose egg, nada. Tough to get a return on equity with those kind of numbers.

F-ing brilliant. I’d like to shake the hands of the person that thought this out. Citigroup, Deutsche Bank, and UBS now have to work a lot harder to sell this deal. Boo-hoo.

Back in my days on Wall Street, I remember working on an IPO and just as the roadshow started, some competitor filed a patent infringement suit. They could have done it anytime, but they waited until the IPO pitch was in full swing. Even though the suit ended up being baseless, it changed the game. Capitalism is not without its Department of Dirty Tricks. Not much different than your beloved Yankees overpaying for Johnny Damon – because they could!

Even the timing gives a clue – now through the end of 2006 – just long enough to sink the good ship Vonage. The effect on Ebay? Noise.
They already took the 3% or so dilution when they overpaid for Skype, they might as well have some fun with it. Lose some cash flow? So what, you’ll barely be able to find it in their income statement.

I was starting to give up hope. Maybe things really are fun again.

Andy Kessler is a former hedge fund manager who now writes on investment trends in technology and communications. His latest book, The End of Medicine will be released shortly.

71 Responses to “Will SkypeFree KO Vonage IPO?”

  1. KYJurisDoctor

    I just signed up for Vonage yesterday for their FREE 30 day trial and I also downloaded Skype, could anyone tell me what I should expect from both of them, how the free Skypeout works, etc., without all the stock market talk?

  2. future is here


    Where are all the apologies from those you almost called you “stupid” for posting such a precised article. It is now Dec. 26 an Vonage is still SINKING!!!! Again, come out, be brave, an apologize. It is SO easy so tell others how “wrong” they are, but SO difficul to admit it when we are wrong!!!

    Good work, Andy!

  3. If you do a simple search with your favorite search engine on Vonage coupon codes or Sunrocket coupon codes the results will be flooded with offers to save you big money, easy setup, etc.

  4. Jonathan

    Isn’t this sort of funny and like an oxymoron in a way? “People Do Stupid Things” Vonage does stupid things like create the worlds worst loyalty program to hoodwink its best customers.

    Vonage Receives Effie for Advertising Effectiveness
    HOLMDEL, N.J., June 9 /PRNewswire-FirstCall/ — Vonage Marketing Inc., a subsidiary of Vonage Holdings Corp. (NYSE: VG), a leading provider of broadband telephone services, today announced that it has won a Bronze Effie Award from the New York American Marketing Association in the Telecom Services category for its “People Do Stupid Things” integrated marketing campaign.

    “Sometimes doing stupid things has its smarts. Vonage’s “People do Stupid Things” marketing campaign, which highlights some dumb things that people do, turned out to be a very intelligent brand direction for us. It educated consumers on the new VoIP category, while urging consumers not to be stupid when selecting their phone service,” stated Mike Snyder, CEO, Vonage Holdings Corp.

    Created by Arnold Worldwide and MPG, the fully integrated marketing campaign, which included print, TV, online and direct advertising, began in December 2004. The TV advertising featured home video footage, touting ridiculous scenarios like children throwing baseball bats through home windows, photographers falling into fountains while snapping their photos and a skier using his roof as his slope, and winding up on top of a truck. Vonage compared these actions to paying too much for traditional phone service in efforts to convince people switch to Vonage.


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