» Vonage Drops 13% on First Day of TradingTelecommunications Industry News

Telecom News Editorials Reports Glossary

Vonage Drops 13% on First Day of Trading

5:38 pm on May 24, 2006 | Category: Business, VoIP

Broadband phone VoIP provider, Vonage Holdings Corp., has dropped like a rock on the New York Stock Exchang, in its first day as a publicly traded company.

Shares sold at $17 yesterday, during an Initial Public Offering, but slid $2.15, or 13%, today to close at $14.85. Most analysts are chalking the loss up to the companyâ€™s high marketing costs, and an uncertain future in the volatile and highly competitive VoIP market.

Vonage admitted in its own prospectus that buying the stock is a gamble, and that profitability may never be reached if high marketing costs canâ€™t be offset. This has led many industry watchers to believe that the $17 IPO cost was grossly over inflated for such a risky investment.

“It’s very hard to see what their competitive advantage is,” said Pali Research analyst, Richard Greenfield. “We basically believed, pre-IPO, that the price should be $10 or less.”

“It’s a wildly unprofitable company still selling at a very high valuation,” commented Tom Taulli of Newport Coast, California, an IPO analyst and author of “Investing in IPOs.”

For the moment, it appears that Vonage has a long way to go if it hopes to capture the long-term trust of investors. â€œVGâ€ certainly isnâ€™t a wise choice for the risk-averse trader, but those willing to take a big gamble for the possibility of huge future gains may still show interest if the company can prove itself worthy with future financial numbers.

Telecommunications Industry News