Vonage IPO stock drops on first day

Judging from the first-day performance of its stock, VoIP pioneer Vonage dialed the wrong number on its initial public offering.

The company's stock closed at $14.85 on Wednesday after going on sale at $17 when the New York Stock Exchange trading day began. Vonage offered 31.25 million shares, raising about $531 million. It planned to use that money to fund continued marketing and future operating losses, as well as possible acquisitions, according to a Securities and Exchange Commission filing last month. In an unconventional move, Vonage set aside some IPO shares especially for its customers to buy.

Vonage is one of the best-known providers of VoIP, offering combined local and domestic long-distance calling plans at flat monthly rates. The company has about 1.6 million subscriber lines, 95% of them in the United States. But its rapid growth, including a tripling of lines during 2005, has come at the cost of huge marketing expenses and ongoing losses. During last year and the first quarter of 2005, Vonage spent almost $332 million on marketing. In the first quarter, the company lost $72.8 million on revenue of $119 million.

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Judging from the first-day performance of its stock, VoIP pioneer Vonage dialed the wrong number on its initial public offering.

The company's stock closed at $14.85 on Wednesday after going on sale at $17 when the New York Stock Exchange trading day began. Vonage offered 31.25 million shares, raising about $531 million. It planned to use that money to fund continued marketing and future operating losses, as well as possible acquisitions, according to a Securities and Exchange Commission filing last month. In an unconventional move, Vonage set aside some IPO shares especially for its customers to buy.

Vonage is one of the best-known providers of VoIP, offering combined local and domestic long-distance calling plans at flat monthly rates. The company has about 1.6 million subscriber lines, 95% of them in the United States. But its rapid growth, including a tripling of lines during 2005, has come at the cost of huge marketing expenses and ongoing losses. During last year and the first quarter of 2005, Vonage spent almost $332 million on marketing. In the first quarter, the company lost $72.8 million on revenue of $119 million.

Meanwhile, the Holmdel, New Jersey, company faces growing competition from established carriers' VoIP offerings as well as Skype, a division of eBay. VoIP technology generally is less expensive than traditional circuit-switched phone systems and allows for special features such as access to voice mail via a Web browser. As the playing field gets more crowded, providers are making aggressive moves on price. Last week Skype offered its customers free calls within North America to phones outside its Internet-based network.

The stock fell from its opening price even as the Dow Jones Industrial Average finished slightly higher on the day. There have been few big first-day gains in IPO stocks so far this year, but Vonage's opening day drop of 12.6% has been the worst.

The IDG News Service is a Network World affiliate.