Vonage Acquires TokBox For WebRTC Video Tech

Summary

• Vonage has announced the acquisition of TokBox for $35 million cash.
• TokBox has developed easy-to-implement video integration technologies for websites.
• The deal promises to be an opportunistic win for Vonage if it can cross-sell the new tech and add value for investors over the medium term.
• This idea was first discussed with members of my private investing community, IPO Edge. To get an exclusive 'first look' at my best ideas, start your free trial today >>

Quick Take

Vonage (VG) has announced it has acquired TokBox from Telefonica for $35 million.

TokBox has developed the OpenTok platform which allows companies to add live video, interactive broadcast, and video chats directly to their websites and mobile apps.

VG management is showing their ability to opportunistically acquire video communications technologies; the deal is promising in the medium-term as Vonage integrates and sells the new capabilities to its customer and prospect bases.

Target Company

San Francisco, California-based video conferencing company TokBox was founded in 2007 to build a platform to let users add group video chat features to their websites and official apps.

Management is headed by CEO Scott Lomond, who has been with the firm since 2013 and was previously VP and GM of LifeSize Cloud Services at LifeSize, a division of Logitech.

Below is an overview video of The TokBox Interactive Broadcast Solution:

(Source: TokBox)

TokBox’s primary offering, the OpenTok Platform, includes:

• Live Video API
• Interactive Broadcast API
• Video Chat Embeds
• Insights

The OpenTok platform is compatible with iOS, Android, Windows, and web browsers, such as Chrome, Firefox, Safari, and Internet Explorer 10 and 11. Users can customize their video chat experience to their needs, from one-to-one video calls to large-scale video conferences.

Investors have invested $26 million in the company and include Sequoia Capital, SV Angel, Bain Capital Ventures, DAG Ventures, Amidzad Partners, Jawed Karim, Rajeev Motwani, and Tony Bates. (Source: Crunchbase)

Market & Competition

According to IDC, the real-time communications [RTC] market is expected to grow to $7.4 billion by 2022, at a tremendous CAGR of 140% during the four-year period.

The main drivers for this expected growth are the adoption of WebRTC, the leading standard of video-capable devices, and the decrease in cost and complexity in software.

Major competitive vendors that provide RTC services include:

• Twilio (TWLO)
• Amazon (AMZN)
• Bandwidth (BAND)
• Plivo
• Voxbone
• Messagebird
• OnSIP
• Vidyo
• Agora

(Source: Callstats)

Acquisition Terms and Rationale

Vonage disclosed the acquisition price as $35 million in an all-cash deal.

The TokBox deal was discussed in the context of slightly upgraded financial guidance, but it looks like the deal will not add much in current terms to the firm’s revenues, i.e., around $10 million per year on a base of $1.04 billion.

A review of VG’s June 30, 2018 10-Q filing indicates it had $26 million in cash and equivalents and $351.3 million in total liabilities

According to its recent earnings announcement, VG has added a $600 million credit facility, of which it used $232 million to retire previous debt for a net remaining capacity of $368 million.

So, it appears the $35 million cash required for the TokBox deal does not present an undue financial hardship for Vonage.

Vonage acquired TokBox for its scalable programmable WebRTC video technologies.

As Vonage stated in the deal announcement,

TokBox has more than 2,300 global customers across a range of applications including: online education, financial institutions, help desks, telemedicine, field services, interactive broadcasts and social media. Today, over 1,700 mobile apps use the TokBox software development kit across Android and iOS. With the addition of TokBox to the Vonage platform, developers will benefit from a simple, flexible and scalable programmable video solution to create engaging, embedded communications experiences.

In the past 12 months, VG’s stock price has increased by 62%, dramatically outpacing the S&P 500 Index growth of around 13%, as the VG chart below indicates:

(Source: SEEKING ALPHA)

So, the TokBox deal is a strategic acquisition that positions Vonage to provide its business customers with scalable, real-time video plug-in technologies that are easy to install throughout websites.

As video usage by consumers and the enterprise increases, with some estimates now stating that users watch 6 hours of video per day, the demand for easy-to-implement solutions is increasing.

The combination of TokBox’s tech and Vonage’s focus on business communications promises to unlock value that didn’t exist while TokBox was a part of Telefonica.

The acquisition looks to be a low-cost way for Vonage to add a growing component to its suite of offerings. While it likely won’t move the stock in the near-term, the deal provides investors with a window into Vonage management’s thinking process and ability to find opportunistic deals at a bargain price.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[dcxavier]

It also enlarges their Bay Area engineering staff. Let's see what they come up with.

[Kjellin]

Long VG. Continues expanding after its Lazarus-like return from a over a decade ago.

[realfood]

Thx, looks interesting; no pos.