Every once in a while, I read one of those articles that makes me wish the TV brick were still around. (If it is, please let me know. All I can find is this foofy British version.)

So, since I can't brick my monitor, I shout at the screen. "Stupid! What kind of moron could possibly write that?"

This week's brick-provoker was a naive article in The New York Times regarding recent IPO Vonage (NYSE:VG). The article tells us that Vonage chief Jeffrey Citron is "confused" by the stock's reception on Wall Street, where it has tanked mightily.

The article, a bit of a birthday ode, also featured a picture of a smiling Citron basking in the authority radiated by the pristine, classical, marble steps on which he's seated.

But it should have had a photo of Citron handing over a check for $22.5 million dollars to settle securities fraud charges at his former gig, Datek. That might have given readers -- if not Citron, Mr. Confusion himself -- a clue to why Vonage's stock is in the toilet.

Oddly enough, the Times neglected to mention this minor nugget of information. I mean, why dwell on what Vonage's own filings admit was one of the largest set of fines the SEC ever collected against individuals?

I'll tell you why. Though Citron's not technically the CEO, as chairman and chief strategist, he still runs the show, and his character and history should matter a great deal to any potential investors. The company he's hawking (literally, right to his customers) is a money incineration machine, and it looks likely to remain exactly that.


Q3 2005

Q4 2005

Q1 2006

Q2 2006






Gross Profit





Op. Income





Net Income





Struct. Free Cash Flow





*Data from Capital IQ. Figures in millions.

As the company continues to burn great wads of cash, investors have only management's promises that better days are ahead. Sure, subscriber count is growing. But unprofitable is unprofitable, no matter how many users are signed up. Just ask the folks in satellite radio.

But at least serial losers like XM Satellite Radio (NASDAQ:XMSR) and Sirius Satellite Radio (NASDAQ:SIRI) have a guaranteed duopoly. VoIP telephony is a business with no moat whatsoever.

Even blimp-floating pretenders like GlobeTel can make claims to this market. How much tougher will it be for Vonage to actually achieve profits -- crazy concept, I know -- in the face of real competition from the likes of AT&T (NYSE:T), Verizon (NYSE:VZ), or Comcast? And slow-moving telcos aren't the only ones in the space. Expanding Internet chat from Google (NASDAQ:GOOG), eBay (NASDAQ:EBAY), Yahoo!, or anyone else could take Vonage's margins down toward zilch.

The moral of the story is clear. Don't pity Vonage. It's the kind of capital-burning junk that should never have been sprung on the public markets in the first place. That's the news that's fit to print.

So forget that sob story in the Times. If Citron thinks Vonage is worth more, let him keep digging in his couch cushions until he comes up with enough change to buy the whole thing.

XM is a Motley Fool Rule Breakers recommendation. eBay and Yahoo! are Motley Fool Stock Advisor recommendations, while AT&T was a former Stock Advisor pick. You can try any of our premium servicesfree for 30 days.

At the time of publication, Seth Jayson had no positions in any company mentioned here. View his stock holdings and Fool profile here. See what he's Digging these days. Fool rules are here.