Vonage Falls 12.6% in First Trading Day
Internet Phone Pioneer Faces Competition From Rivals' Free or Low-Price VOIP Service
Traders crowd the Vonage post during the firm's first day of trading on the NYSE. Shares of the Internet phone provider fell 12.6 percent to close at $14.85.
(By Richard Drew -- Associated Press)
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Thursday, May 25, 2006
Shares of Vonage Holdings Inc. fell during their first day of trading yesterday, signaling to many on Wall Street that the best-known Internet phone brand in the United States faces stiff competition from companies offering comparable calling service for close to nothing.
After opening at $17 a share, shares of Vonage closed down 12.6 percent, at $14.85 a share. The Holmdel, N.J., company, which sells monthly Internet-based phone service that transmits calls over high-speed Internet connections, had already raised $406 million in venture capital investments and yesterday raised $531.3 million by selling 20 percent of the company's total shares to the public.
"IPOs [initial public offerings] tend to be volatile, but there are some real longer-term concerns for the company," said Todd Rethemeier, an analyst with Soleil Securities Corp. Vonage faces competition from traditional cellular and cable companies pushing their own phone service, as well as other companies that offer some form of Internet-based calling, he said.
Vonage's biggest asset is its 1.6 million customer base and its brand name. It heavily markets itself as an alternative to traditional phone service, and for $24.99 a month Vonage offers unlimited calling in North America and parts of Europe.
The company posted good growth during its first quarter, adding more than 328,000 customers, and its revenue nearly tripled, to $119 million, during that time period, compared with the year before.
At the same time, however, some of Vonage's biggest rivals dropped prices, intensifying the competition for customers.
Last week, Skype Technologies SA started offering its computer-based phone calls for free in the United States and Canada. Last week, New York area cable firm Cablevision Systems Corp., which has 900,000 phone customers, started offering 500 minutes of international calling for $19.95 a month. Verizon Communications Inc. also dropped the price of its version of Internet phone service from $29.95 to $24.95 a month and started offering basic local phone service with unlimited domestic calling for $29.95 a month.
"The worst [for Vonage] was Skype going to zero," said Patrick Comack, an analyst with Zachary Investment Research. Although Vonage's service quality is still better than Skype's, Skype's voice quality is improving and is free, he said. "Pricing is going to zero."
Vonage officials declined comment on the public offering.
