Mr. Vonage IPO, You Are No Google

| About: Vonage Holdings (VG)
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By Carl Howe

Vonage announced it plans a $250 million initial public offering yesterday. So will we see Google-like appreciation once it hits the secondary markets? The short answer: no. I followed the Google IPO, I knew Google, Google was a friend of mine, and Mr. Vonage, you are no Google. This is a liquidity event for the Vonage investors, pure and simple. Here's why:
  1. No profits. The company is losing money hand over fist. It spends 101% of its revenue on marketing, and the money raised by this IPO will be gone in less than a year. Further, the company plans losses as far as it can see in the future. Google was hugely profitable at its public offering; Vonage is in a completely different position.
  2. No differentiation. Everyone from Microsoft to Google to eBay has voice over Internet protocol (OTCPK:VOIP) offerings in the market. Even the telcos like Verizon and at&t offer VOIP services now. Many competing offerings are bundled with other communications systems like instant messaging, while Vonage's offer is a stand-alone service. Google's market position was nearly unique when it went public; Vonage's service is a commodity.
  3. No strategy. Nothing in the S-1 filing indicates to me that the company has any plan to change its operation to sell anything other than VOIP service, nor any plan to get its costs below its revenues. Google may have been stubborn about doing its offering its own way, but at least it laid out a plan for how it was going to grow its business once the offering was done.
So if the fundamentals are this bad, why is Vonage going public? The answer is simple: The investors need a liquidity event to get their money back. The big question they haven't answered is why they think consumers or institutions will want to buy shares in the IPO. All I know is that it's no Google.

Disclosure: I own no telecom stocks nor Internet stocks that might be affected by Vonage's IPO.