TechWeb

Vonage Tanks In Market Debut

May 24, 2006 (02:05 PM EDT)

Read the Original Article at http://www.informationweek.com/news/showArticle.jhtml?articleID=188500013


Vonage Holdings Corp.'s market debut on Wednesday got a cold shoulder from Wall Street, as the Internet telephony company posted the worst first-day performance in two years.

The Holmdel, N.J., company launched on Tuesday its initial public offering, which set the share price at $17 at the market opening. Despite inching up 25 cents for a time, Vonage stock finished the day at $14.85, a 12.6 percent drop from the IPO price.

Vonage's debut was the worst since nanotechnology company Lumera Corp., which lost 13.5 percent during its first day of trading in July 2004, The Wall Street Journal reported.

Vonage raised $531 million in its IPO, which it filed with the Securities and Exchange Commission in February. The company at the time said it needed the money for expanding its business and to fund marketing and operating losses.

Vonage's strategy has been to trade profits for heavy spending on marketing to increase its customer base, which has reached 1.4 million subscriber lines. In the first three quarters of 2005, the company lost $189.6 million, while spending $176.3 million on marketing, according to SEC filings. The company remains unprofitable today.

Vonage's historic losses and the tough competition it faces in the market apparently left many investors on the sidelines. Besides having to eventually turnaround its finances, Vonage faces competition from companies with greater financial resources. EBay Inc., for example, acquired Internet telephony vendor Skype, last year. In addition, major telephone companies, such as AT&T, are moving into the market for voice over the Internet.