May 23rd, 2006
Why Vonage IPO day is like a cult film's opening night
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.
Russell Shaw is an enterprise computing journalist, analyst and author based in Portland, Oregon. See his full profile and disclosure of his industry affiliations.
