Why Vonage IPO day is like a cult film's opening night

Why Vonage IPO day is like a cult film's opening night

Summary: Late yesterday, Vonage priced its Initial Public Offering at $17 a share, and expects to raise $531 million from the IPO shares. The shares will start trading this morning.

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TOPICS: Start-Ups
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vonagelogo_2.jpg Late yesterday, Vonage priced its Initial Public Offering at $17 a share, and expects to raise $531 million from the IPO shares. The shares will start trading this morning.

Thus far, the most loyal contingent of Vonage users eligible to buy these shares as part of the IPO-associated Directed Share Programming have reported that on average, they have only been able to secure an allotment of shares that on average is between 1/4 and 1/3 of what they have requested. I know this because of all the posts I am able to read on the Post Your Allocation thread of the Vonage Forum. Note: you have to be a registered Vonage Forum Member to read this thread.

The fact that there doesn't seem to be as many DSP shares available as there is a market for them might indicate to some that the Vonage IPO will go like gangbusters.

I started to consider that possibility. Then it started to occur to me how much this opening burst of enthusiasm resembles an opening night of a movie with a loyal, but narrow audience. Or, for that matter what the music industry used to see in the pre digital download days when an album (remember them) by an artist with a small but loyal constituency shipped to the record stores.

Time and time again, those first few days go like gangbusters. Lines halfway out the door and around the block. The reason for those lines is that pretty much everyone who cares about that movie or that recording artist, wants to be first to see the film or buy the CD. That's why they are all there on opening night.

Yet by that second week, pretty much everyone who has wanted to witness the movie or own the CD already has. At that point, market enthusiasm slows to a trickle. Within weeks - sometimes sooner- that movie with a boffo opening night or CD with great first week sales is on deep discount.

Relating all this to Vonage, what you have here in the first couple of days is the enthusiasm of a loyal but small constituency. After that constituency buys in, and the early stock adopters have their shares, that's when the real test will be.

Will subsequent swaths of smart money come in, or will Vonage stock dip to levels where the market cap from going public won't be able to cover those huge marketing expenses that already have brought Vonage into the red?

That's when the reality of Vonage's untenable long-term competitive prospects against triple-play telcos, cable VoIP providers and IM-to-VoIP rivals - not to mention slim chance of net neutrality protections- will cause the stock to languish at single-dollar figure levels. 

Just like that second weekend after the cult film's gala opening night, I don't see the interest in Vonage stock as sustainable.

Topic: Start-Ups

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  • Vonage IPO

    Why does everybody want to bad-mount Vonage? Remember AOL dial-up? We all laughed - who would want it? But the company was signing people up by the millions. Guess What? Vonage is signing up people by the millions.

    OK, so the cable companies will compete against Vonage. What if News Corp, who paid $560 million for myspace.com - decides that Vonage would be a nice fit with their Satellite TV for a bundling feature?

    Or, what if one of the cable companies - decides to buy Vonage? Or Yahoo?

    I have 4 accounts with Vonage, my first since 2004. Their software rocks.

    And yes, I did get in the IPO. Requested 1000 shares was issued 300.
    dotellus
  • opening night the next morning

    The Holmdel, N.J., company's IPO, one of the highest-profile stock debuts this year, opened at $17 a share, flat with its offering price, before dropping to $16.32, a dip of about 4%.
    TheCrystalBall