Seeking Alpha
Profile| Send Message|
( followers)  
When Vonage Holdings Corp. (VG) was started in 2000, it seemed an exciting new company: a way to use the internet to supply cheaper phone service with all kinds of neat possibilities, like linking your phone to your email account. The technology was rough in the beginning, with echoes and delays, but people felt there was real potential here. Vonage ultimately went public in May 2006 at a price of $17. By then the company had moved from a new, niche technology to a mainstream company.

Yet, the stock dropped immediately after the IPO and, as of this writing, it hasn't even come close to recovering. The fact is, this stock is done and it wouldn't surprise me if Vonage went out of business.

Many Vonage investors are probably scratching their heads and wondering what happened. Demand is only increasing for internet phone, and many people think it's the way all phone calls will be made in the future. The problem is, by the time it went public, Vonage had far too much competition from other internet telephone services. Traditional phone companies like Verizon (VZ) offer their own plans, as do cable companies like Time Warner (TWC). There are also many other smaller internet phone companies offering their own inexpensive plans, often as low as $19.95 per month. It's not that Vonage has necessarily done anything wrong; while it's still operating at a loss, its revenues have been increasing at more than 10% every single quarter since the last quarter of 2004. The problem is that it's operating in a ruthlessly competitive market, and it doesn't have the muscle to compete with companies like Verizon Communications and Time Warner Inc. (TWX), especially since those companies already have reliable customers for their other services and can offer them deals for bundled services that are much more appealing than what Vonage has to offer.

To make matters worse, Vonage is now being sued by Verizon for allegedly infringing on Verizon's voiceover internet [VOIP] protocols! While I respect what this company tried to achieve, I'm sorry to say there's just no hope for this stock.

Type of stock:
An exciting new company that blended telecom and the internet to offer a new type of phone service.

Price target:
None. If you don't own this stock now, don't buy it. You might see it climb a dollar or two (it's currently just above $5), but you'd be better off taking the loss and trying to make up for it elsewhere. It is a possible acquisition candidate -- another company could certainly make use of Vonage's subscriber base -- but any acquisition price isn't likely to be much higher than the stock is now.

Source: Vonage Holdings: Time to Hang Up The Phone