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Vonage IPO has year’s worst first trading day

Shares of Vonage Holdings Corp., the Internet telephone pioneer, dropped sharply in their trading debut Wednesday, dismaying customers who had been given a chance to participate in the initial public offering.
/ Source: Reuters

Internet telephone service provider Vonage Holdings Corp. Wednesday rang in the steepest decline of any market debut this year as its shares slid nearly 13 percent on concern about stiff competition.

The shares fell $2.15, or 12.7 percent, to close at $14.85 on the New York Stock Exchange after falling as low as $14.50 earlier in the session.

Vonage has acknowledged it may never be profitable and is viewed with skepticism by many analysts, who cite the growing competition it faces in providing voice-over-Internet protocol  services.

“It’s very hard to see what their competitive advantage is,” said Richard Greenfield, an analyst at Pali Research. “We basically believed, pre-IPO, that the price should be $10 or less.”

The IPO, which priced Tuesday at $17 a share, the midpoint of a previously established range, raised $531 million. The Holmdel, New Jersey-based company said it plans to use the proceeds to fund expansion and marketing and repay debt.

Since its inception in 2001, Vonage has incurred losses in every quarter, a deficit that reached $455 million March 31, according to a filing with the Securities and Exchange Commission.

“It’s a wildly unprofitable company still selling at a very high valuation,” said Tom Taulli of Newport Coast, California, an IPO analyst and author of “Investing in IPOs.”

He said he was surprised the company had managed to raise half a billion dollars through the IPO.

“That’s not an easy thing to do in this market,” he said.

Not only does Vonage face pressure from similar services by eBay Inc.’s Skype and Google Inc., it also competes with telephone and cable television giants offering all-in-one packages of voice, Internet and entertainment.

Vonage’s opening day was the weakest of any IPO this year and the laggard among major tech IPOs in the past 24 months, according to Dealogic.

Analysts have said that, while Vonage would likely add customers for the next few years due to a rise in high-speed Internet subscriptions, it may have a harder time ahead as cable and telecommunications companies’ bundled services take hold.

The company has grown rapidly in the last two years, more than tripling its subscribers since 2004, but conceded in the SEC filing that it does not expect to sustain that level of growth.

Some skeptics say Vonage likely chose to go public because it was desperate for capital and no company came up with an adequate takeover offer.

“You could always find a buyer, but they probably couldn’t find one at the price they wanted,” Taulli said.

Citigroup Global Markets Inc., Deutsche Bank Securities and UBS Investment Bank Inc. were the joint book-running managers on the IPO.