The Betting Line On Vonage - will even their IPO money be enough?
Recent desertions from Vonage by A-List VoIP bloggers, along with the much publicized troubles of the residential VoIP giant made me think really hard about what the future holds for Vonage.
There are three ways to go.
In the optimistic scenario, Vonage reaches profitability, continues growth, starts to turn around its customer churn problem and becomes the Ma Bell for the 21st century.
In the pessimistic scenario, Vonage continues to struggle with customer conversion and retention and faced with even stiffer competition from the cable companies and from the cellular companies, slinks into raising more cash like an addicted consumer rolling their credit cards over yet again.
Somewhere in the middle, Vonage struggles hard, its stock price drops into $2-$4 territory and one of the big talcos/cable cos snaps it up.
So which is it going to be?
As befits any real financial decision, there are some hard numbers to digest. These are gathered from the best public sources we could find but some of them are not much better than guesses.
Amount Vonage raised in its IPO: $531 million - but there are costs associated with fighting innumerable shareholder lawsuits. Even assuming they win them all, lets say that the real amount raised is $475 million. That’s Vonage’s cash fund for buying new customers.
Cost to acquire a new customer - $239 -according to Vonage itself.
Number of customers that $475 million will buy: 1.99 million customers (calculated).
Pre-existing customers: 1.4 million or so - various public numbers.
Churn rate (rate at which Vonage loses existing customers) - 2.3% per month
Revenue per customer per month: $27.70 - reported in Vonage’s quarterly results.
EBITDA (earnings before interest, taxes and depreciation) per customer per month: $5.39 (unable to verify this - in fact every calculation I could do based solely on public numbers makes it lower than this).
Vonage has stated that it thinks it will become profitable early in 2008. However, my calculations show it running out of money in April 2008. So which will come first?
We’ve decided to harness the power of public opinion. Put your vote on the odds and your prediction of what willhappen in the comments here.
Here’s our take:
Odds of Vonage going broke before it becomes profitable: 5-4
Odds of Vonage becoming profitable before it runs out of its IPO cash: 2-3
Odds of being acquired before June 2008: 1-3
Place your bets…
[ Vonage, voip, internet telephony]