Vonage IPO: All that's left is the crying

Vonage's IPO bombed: now down 25%. Worst in two years. 

Now here's an extra slap for investors: Vonage customers who want to renege on their share purchase can do so, safe in the knowledge that the company will pick up the bill.

David Jackson, an ex-Wall Streeter and founder of the Seeking Alpha Network, says the lesson for companies is to never sell stock to your customers.

My take is that the whole process of the IPO was formulated earlier in the year when VoIP looked like the hot flavor of the month. The Preliminary Prospectus was filed in February.   But with the actual IPO in May, it seems the company and its investors failed to consider their risks were changing, that VoIP was looking more like a commoditization play than an innovation.

In my experience, the stock market and news sources offer a lot of free feedback that is invaluable in understanding investments and risk, if you look for it. Skype's free SkypeOut announcement was one of these free indicators on the trend to devalue Vonage service, and as TechCrunch put it, to see calling fees disappear.

Why do investors and companies fail to see risk? Likely because there was such an illusion of instant profits... a mania even.

Ouch!
 

Other Angles:
Andy Kessler's blog is full of comments prior to the IPO from supportive Vonage customers/investors who criticized him for highlighting the risks of the IPO and missing "the next Google".

The last paragraph in today's New York Times' report on Vonage quotes an analyst speculating that the company is now takeover bait.

Full archive of On Disruption columns published in the Financial Post.