Based on the aggregated intelligence of 165,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, Internet phone company Vonage Holdings (NYSE: VG ) has received the dreaded one-star ranking.
With that in mind, let's take a closer look at Vonage's business and see what CAPS investors are saying about the stock right now.
Vonage facts
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Headquarters (Founded)
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Holmdel, N.J. (2000)
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Market Cap
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$501.9 million
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Industry
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Alternative carriers
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Trailing-12-Month Revenue
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$893 million
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Management
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CEO Marc Lefar (since July 2008)
CFO Barry Rowan (since February 2010)
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Return on Assets (Average, Past 3 Years)
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3.3%
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Compound Annual Revenue Growth (Over Past 3 Years)
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9.3%
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Cash/Debt
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$52 million / $203.9 million
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Year-to-Date Return
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70%
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Competitors
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AT&T (NYSE: T )
Verizon Communications (NYSE: VZ )
Qwest Communications (NYSE: Q )
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Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.
On CAPS, 72% of the 1,533 members who have rated Vonage believe the stock will underperform the S&P 500 going forward. These bears include RetireOrExpire and Option1307.
Just last week, RetireOrExpire voiced his bearish beliefs:
When Vonage launched most Americans had no idea what VOIP was. Vonage cut landline costs roughly in half. Those days a long gone. Every year Vongage prices go up and now whole host of fee/taxes are added to the bill. It is less of a value at a time when new players are entering the market without legacy costs and many Americans simply dropping landlines all together. Margins will be squeezed. Will be very difficult for company to generate earnings growth and tackle 320M in debt it is holding.
Bundled services offered through well-established, incumbent phone operators like AT&T and Verizon have significantly lowered costs and increased convenience for customers over the last several years, while players such as Skype and Qwest offer comparable, and sometimes even cheaper, VOIP alternatives. To be sure, Vonage has reduced churn rates to their lowest in three years, but Fools still aren't convinced that the stock's latest run-up is justified. Option1307, a satisfied former customer, explains:
I have used Vonage extensively living abroad and thoroughly enjoyed their services when I did; however, let's not kid ourselves here Fools. Vonage is a great concept, but it has had it's run and now is a dying breed. Simply put, there is no reason to use Vonage anymore, ever. ...
Oh you want some numbers to back up that fundamental reason, why sure, they are terrible as well.
Vonage has been increasing revenues the last 5 yrs., I'll give them that, but they have had exactly 0 profitable years since their inception. Yep, I said zero. They are good at one thing and one thing only, losing money! ...
[Vonage] is on a downward trajectory to the technology graveyard, say goodbye!
(Note that in 2009, the GAAP loss was due to a non-cash charge.)
What do you think about Vonage, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!
Editor's note: While correct as originally published, a point of clarification regarding Vonage's net income has been inserted.
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