Veritas Research analyst Neeraj Monga has published an extensive and critical report on Vonage after some serious number crunching. Entitled “Not Too Late to Hang Up”, Monga concludes Vonage is a “sell” and its stock is worth less than $5. “Vonage is caught up in the perfect storm,” he said. “Regulatory uncertainty, competitive pressures, lawsuits, unhappy customers and a damaged brand will derail its business plan. Time to hang up.” While the company's supporters point out Vonage could have 4.5-million to 7-million customers by 2009, Monga said growth will come at a cost: $777-million to $1.28-billion of cash burn. If things come in on the high of the range, he thinks Vonage may have to make a debt or equity offering next year.
Vonage is starting fight back after a post-IPO quiet period that lasted until June 19. In a BusinessWeek story, spokeswoman Brooke Schulz said “we're not toast”, and that people who look at the cash burn are ignorning the fact “we have a healthy business here”. That's a certainly optimistic outlook, which it ignores the fact Vonage is bleedling rink ink and it has no plans to become profitable any time soon as it focuses on subscriber growth. It should also be noted Vonage just hired a new senior v.p. of investor relations, Craig Streem, who will a huge job trying to convince the investment community that the company is headed in the right direction. Vonage shares closed yesterday at $8.85, just above the 52-week low of $8.25. Just in case you forgot, the company did its IPO at $17 a share.