Vonage tells customers to pay up for IPO
The approximately 9,000 Vonage Holding Corp. customers who took up the company's unusual offer of participation in its $250 million IPO are now feeling some serious pain.
The stock is down more than 29 percent since its much heralded debut a week ago. And whether the company's offer was meant to generate goodwill and good publicity or just prop up an IPO that had lagging institutional interest, many of those customers are no longer singing Vonage's praises.
The company sold the deal to reserve 13.5 percent of the shares for its customers as a way to reward them for their loyalty. And, at the time, blogs were abuzz with happy customers talking about how they had signed up and were hoping to be richly rewarded.
"I'm going in head first," noted one customer, while another said he had signed up for 100 shares and was going to seek out "family and friends" to pool together some more funds.
Now, some are threatening to withhold payment for the shares they were allocated. Others say they will drop the company's phone service.
The roller-coaster ride was apparently even worse for a few Vonage customers who say they logged into their accounts at the company's IPO website before the offer to find that they had not been allocated any shares.
They were disappointed until the stock started trading and took a dive. Then they thought they had dodged a bullet. But when they logged into their accounts again they found they had been allocated shares after all.
"Up popped [my] ill-fated allotment," wrote one customer, Greg Hill, on another site. "Curse them."
Initial reports that the company might not make its customers ante up for the shares they were allocated was put to rest last night with a strongly worded press release.
"To be clear," the company said, "we have not offered and are not offering to repurchase any of the shares of common stock from our customers."
So where will the stock go from here? Vonage is in a very competitive market, with both upstarts like Skype and established telecommunication companies like Verizon moving into the voice-over-Internet space.
Also, the FCC has signaled that it may soon require such Internet phone companies to pay into the Universal Service Fund, which could add $1.77 to a $25-a-month phone bill. Although traditional telephone companies have long had to pay the fee, which subsidizes phone service for low-income and rural customers, cable providers and voice-over-Internet companies have not.
According to the company's prospectus, its revenues have grown rapidly – $79.7 million in 2004, compared with $18.7 million in 2003. But it also loses money hand over fist, with more than $189 million being lost over the first nine months of 2005.
Then there are the questions about the history of founder Jeffrey Citron, who stepped down as CEO to become the company's chief strategist just prior to the IPO filing. In 2002 and 2003, Citron was among a group of Datek Securities executives fined by the SEC for participation in a fraud.
"There is a risk that some third parties will not do business with us, that some prospective investors will not purchase our securities, or that some customers may be wary of signing up for service with us as a result of allegations against Mr. Citron and his past SEC and NASD settlements," the prospectus noted. "We believe that some financial institutions and accounting firms have declined to enter into business relationships with us in the past, at least in part because of these matters. Other institutions and potential business associates may not be able to do business with us because of internal policies that restrict associations with individuals who have entered into SEC and NASD settlements."
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