As a Vonage customer, I had an opportunity to bid on buying shares at the IPO price. Normally I’d leap at the chance, but this time I did not. Why? Why is it continuing to slide (just checked at 2:28pm CDT and it’s at $12.10)?
Conventional wisdom dictates that the stock market is a popularity contest. True enough, but optimism about upside potential is why a stock is popular or is not. After my recent adventure analyzing and experiencing Vonage vs. Skype vs. the GizmoProject, my perspective on that upside was perhaps more realistic than most.
Here is Vonage’s problem in a nutshell: they’re burning cash and what they’ve built is incredibly vunerable to competition while cost of long distance telephony is falling to zero. Though Vonage has a 20% or so better quality of service — and doesn’t require a PC to use — Skype is good enough (though the Session Initiation Protocol of Gizmo is inferior to Skype). That good enough capability of Skype coupled with their recent “all calls are free in North America this year” did it for me and for the market. AT&T, the cable companies, Wifi/Wimax deployments (Skype calls can be made via these) and the acceleration of mobile telephony bandwidth are all converging to make Vonage seem pretty unattractive.
It’s the first time I’ve truly followed my gut on a stock pick and let it rule my head. Looks like it was a good call this time.