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June 03, 2006

Step Right Up, One Thin Dime!

As the smoke from the wreckage of the Vonage IPO begins to clear, I doubt anyone is surprised to find lawyers standing at the ready:

Law firm Motley Rice LLC said this evening it has filed a class action lawsuit in the United States District Court for the District of New Jersey on behalf of purchasers of the common stock of Vonage Holdings Corp.

The law firm issued a press release that accused Vonage of publishing a "false and misleading" Registrtion and Prospectus, an alleged infraction that has Motley Rice convinced that resulted in a 30 percent decline in the stock price since the stock went on sale, and the disillusionment of customers who were afforded he opportunity to purchase Vonage stock at $17 a share as part of the Directed Share Program.

The story continues with an excerpt of the lawsuit filing, filled with legalese and codes for this law and that, but I think I can sum it up for you:

Irrational exuberance
Why, everyone knows that IPOs are supposed to go up, not down! What does it matter if the company (as much as I like their service) is bleeding money from every orifice? I mean, really, do profits and earnings and cash flow really have any importance? Sheesh

I seem to remember a time in the not too distant past when a bunch of companies with lots of "potential" (a mystery substance very similar, I am told, to the ether) and little else were hugely overpriced and then subsequently, and harshly, sent in the other direction. Just because a lot of people in the market learned their lesson and you didn't is no reason to be a cry baby.

Heck, I was even almost caught up in the "cool factor" of a company offering IPO shares to its customers; just not enough to actually complete the registration and put money into it. Hooray for me.

These days, I'm much more interested in value investing as a strategy - and from that perspective, there's very little to recommend Vonage right now. If you're interested in a pretty concise take on the matter, check out this entry from Phil Town's blog.

So here's the question for a business buyer like yourself, Todd: How much is Vonage worth today?

And the answer? Who knows?

There is no way to predict where this business is going to be in ten years. None. They are trying to build a brand moat but who knows if they will get there. Seems to me a telephone business brand isn't worth the paper it's printed on. Telephoning is a commodity.

...you will see that it is pretty much impossible to know the value of Vonage.... And that makes this deal a lottery ticket.

In short, the pissed off shareholders are pissed because they bet and lost. But, hey, you pays your money and you takes your chances. Get over it.

Posted by Andy at 08:48 PM





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