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Vonage: ‘Please Don’t Leave Us’ at Trader’s Narrative

Vonage: ‘Please Don’t Leave Us’

Bloomberg reported recently that Greenfield, an analyst at Pali Securities, downgraded Vonage to a sell after he called to cancel and was given a special lower price to stay on as a customer.

Greenfield is jumping the gun a bit if he downgraded Vonage to a ‘Sell’ just because they have a bit of a separation anxiety. After all, following such a criteria, all cable and telecom companies would also have to be downgraded.

But in the case of Vonage, this is a tell for a much more serious issue. We already know that each new customer costs them on average $270+. This means that it takes them more than a year to break even on that new customer.

The voip sector is also getting crowded with every established carrier and cable company rolling out their own. Established companies have the advantage of being able to bundle their voip with other services like satellite tv, cable tv, cell phone packages and other goodies. As well, they have a headstart with an existing customer base.

Then you there are the computer based voip services like skype and gizmo which the more tech savvy tend to use. I’ve recently taken advantage of skype’s special promotion to make free calls to landlines within North America. The quality of the calls are surprisingly good and the price isn’t bad either. ;)

So with all this competition, what is Vonage going to end up doing? Pay clients to use their services?

Another challenge for Vonage is their churn rate. They need a lot of new customers to replace those that are leaving… so they have to keep running to stay in the same place. And with clients leaving right, left and center, they have no pricing power:

Vonage Pricing Crunch.png
Source: GigaOM

Leaving aside fundymental concerns (they give me a headache), we see that technical analysis draws a similarly negative picture:


As you can see, Vonage is getting crushed. I know, I know, the market hasn’t been doing too well lately. But still, Vonage’s relative strength is nill. Even on the days when the general market rallied strongly there is almost no discernible response on its chart.

Notice how the price has contracted just below the round number $10 and on Friday managed to breakdown below the congestion. People might think that Vonage is ‘cheap’ here as it is below $10. But beware! a stocks can always get cheaper.

I just checked and IB has VG available for borrow - Hmmm…

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9 Responses to “Vonage: ‘Please Don’t Leave Us’”  

  1. 1 Lawrence Kwan

    Hey Babak, sorry that I wasn’t able to read your blog for a while. Very through and insightful analysis on the sector and the overall industry trend.

    Just wondering, so you do short stocks when there is an opportunity, right?

  2. 2 Lawrence Kwan

    Haha, just now CNBC announces the news at 11:00 that Verizon sues Vonage.

  3. 3 Babak

    Yeah, that was rather prescient :)

  4. 4 We HATE Vonage

    Dude—Where is your “anal”ysis ? It march 23, 2007 and Vonage hit $3 per share after it loses another patent infringment suit. Utterly poor leadership at vonage is the biggest loser since Enron.

  5. 5 Babak

    Not much else to say. The graph was speaking louder than anyone :)

  6. 6 James Stern

    Vonage losing a net 800 customers per day. How long can they last? I see an Obama bailout for the Frenchies coming soon to a screwed up phone company near you.

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  2. 2 I Hate Vonage, You Hate Vonage, We All Hate Vonage!
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