As reported by the Red Herring, Vonage has amended its S-1 filing, signaling that its IPO may be around the corner. I've previously posted about Skype's acquisition by Ebay. It appears that the Skype valuation has influenced the implied valuation of Vonage. Yet another example how a private transaction can influence a public valuation, and more importantly, leave individual investors in Vonage hanging onto the bill.
I've already talked about VOIP wars between Skype and Gizmo as well as Gizmo's Area 775 and Jajah's upcoming new service. What is interesting is that Vonage is clearly the worst of the VOIP players, yet it has the largest user base and is the most well-funded. Even the Red Herring article quotes a research analyst quipping that perhaps Vonage should use more of its funds to improve its product offering before going public. This so much reminds me of AOL's initial online service offering pre-internet bubble. At the time, AOL's service was shoddy at best, yet they had a monopoly on the market and first-mover advantage. Clearly they would not have survived had they not diversified into a media conglomerate. Perhaps the fate of Vonage won't be so different.
Before I go let's quickly be students of the S-1 and rundown 4 key features in the amended Vonage filing:
Principal Shareholders: Jeffrey Citron (CEO), Bain Capital, Meritech Capital, New Enterprise Associates, 3i Global Technology. Interestingly, Gov. Tom Ridge (of Homeland Security) has shares and is a director (I'm not sure how the hell he got a Directorship and maybe he sucks at Homeland Security, but he knows how to profit from his position!)
Company Story: Started in post-bubble 2002, 95% customers U.S., apparently Citron started it with lots of money from Datek.
Leadership: Jeffrey Citron owns 41%, but is stepping down as CEO, apparently he did some shady stuff at Datek and had to pay some fines and is barred from the securities business. He is young, only 35! He makes about a million in salary and bonus, not including about 4 mm he has in options and not including the 41% of Vonage he owns. Obviously he is somewhat of a badass that has gotten into some trouble before, but he is obviously a mean businessman. And now he is gonna be one rich thirty-something!
Financials: Expanding revenues of 19 mm in 2003, 80 mm in 2004, 270 mm
in 2005 and 120 mm through March 2006. Expanding losses from inception until
now is $455.1 million. 2005 loss of $261 mm and loss of 73 mm through
March 2006.
Final Assessment: This is a lofty valuation that would concern me as an
investor. Given that I have some holdings that have Vonage stock and stock of
other VOIP players, I am not too worried, but I am certainly not buying
into the IPO. Such a valuation for such a big money loser will certainly bode
well for existing VOIP players who may be looking for liquidity.
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