I should have known better than to try and inject a little reality into a great story. A couple weeks back, I took a look at the basic math and ethics (or lack thereof) behind the much-hyped Vonage (NYSE:VG) IPO and warned investors to give this dog a wide berth. The foremost reason among these was that its pre-IPO offer to customers smacked of real desperation. But there were plenty of other reasons to fear a bite.
Some of the hairy details are here. The refresher course is this: You're looking at a company whose major shareholder and "chief strategist" was in major trouble with the SEC, which he settled via the old checkbook routine. Oh, and it also spends money like a drunken frat boy in Cancun.
|
2002 |
2003 |
2004 |
2005 | |
|---|---|---|---|---|
|
Revenues |
$0.97 |
$18.7 |
$79.7 |
$269.2 |
|
Operating Income |
($12.4) |
($28.1) |
($71.6) |
($264.5) |
|
Net Income |
($12.7) |
($30) |
($69.9) |
($261.3) |
|
Free Cash Flow |
($14.5) |
($23) |
($49.5) |
($266) |
Let's review that score. Not only does Vonage lose every single penny it takes in on the top line, it consumes another $266 million on top of that.
Sure, the top-line growth looks impressive, but it's bound to slow. There will be pressures from eBay's (NASDAQ:EBAY) Skype, Google's (NASDAQ:GOOG) chat, other voice IM services from Yahoo! (NASDAQ:YHOO) and Time Warner's (NYSE:TWX) AOL, along with Comcast (NASDAQ:CMCSA) and Verizon (NYSE:VZ) and just about anyone else who can run software and tap into the Net.
But let's get to the lesson from today's bloodshed. IPOs are not designed to make money for us little people. (No one in the business world wants to share a great moneymaker with the likes of us, trust me.)
That's the point I was trying to get across originally, and although a few readers thanked me for pointing out the obvious, others couldn't understand why I was raining on their parade.
Most of the responses I got came from the greedy, vulnerable, and small. They were thankful for this great opportunity to get in on the ground floor of a business they love as a customer. And with the media out there coughing up comparisons to other successful IPOs -- Google, anyone? -- it was clear that there were plenty of stock-market dilettantes seeing blurry because of the dollar-signs scabbing their eyes. That is, of course, exactly what I think Vonage was hoping for when it whipped out the customer stock offering.
Unfortunately, so far today, Vonage has only offered these loyal customers a chance to lose 15% on their money in a few short hours. That's bad, because I don't like the fundamentals of this money-burner stock price even now. And if IPO euphoria can't float this boat, what will?
Time Warner and eBay are Motley Fool Stock Advisor picks. If you like the sound of those stocks, come see what other companies David and Tom Gardner have selected for the Stock Advisor newsletter.Sign up today for a free30-day guest pass.
Seth Jayson wonders why so many people fail to heed the obvious. At the time of publication, he had no positions in any company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.
