Vonage Headed to IPO Market

Five months ago the first rumors of a Vonage IPO first began to surface. It turns out those rumors
were true.

VoIP darling Vonage has filed for an IPO with the Securities and Exchange
Commission in an offering that is expected to fetch $250 million, a far cry
from the $600 million Vonage was rumored to be seeking last year.

The news
comes as Vonage’s losses and expenses continue to mount and to top it off it
has also named a new CEO.

To date Vonage has reportedly already raised some $658 million dollars, $250 million of which was just raised this past December.

Vonage’s SEC filing also provides a glimpse into the business
activities of one the leading VoIP services. Vonage claims in its SEC
filing that many independent market research analysts think that VoIP growth
will outstrip broadband growth through 2007.

The previously non-publicly disclosed financial data in Vonage’s SEC filing
would seem to back up that assertion.

The filing reveals that for the nine
months ended Sept. 30,2005, Vonage’s net subscriber lines totaled
1,061,786 up dramatically from the 275,615 it recorded for the same period
in 2004.

Subscriber growth however is coming at a staggering cost. Marketing costs
per gross subscriber line addition in 2004 was reported to be $137.70. That
figure grew to $213.77 in 2005.

The financials also show increasing losses as it has
grown its consumer VoIP business. The risk factors detailed in the SEC
filing are very explicit about those losses.

“We have incurred losses since our inception, and we expect to continue to
incur losses in the future,” the filing states.

Vonage’s cumulative net loss from its inception through Sept. 30,
2005, was $310 million, with quarterly losses increasing each quarter during
that period.

“Initially, our net losses were driven principally by start-up costs and the
costs of developing our technology,” the filing states. “More recently, our
net losses have been driven principally by marketing expense, which was
$176.3 million for the first nine months of 2005.”

Vonage’s marketing efforts are broad and have included massive amounts of
Internet-based ads, as well as various offers
all designed to convert consumers to the gospel of VoIP.

“In order to grow our revenue and customer base, we have chosen to increase
our marketing expenditures significantly,” the filing continues.

“We are
pursuing growth, rather than profitability, in the near term to capitalize
on the current expansion of the broadband and VoIP markets and enhance the
future value of our company.

“This strategy, however, may not be successful, and we may never achieve

Vonage’s public face will also include some new leadership. Jeffrey A.
Citron, Vonage founder and Chairman of the Board, is yielding his CEO title
to Mike Snyder.

Snyder had been the president of Tyco Fire and Security
division ADT since 1997. Citron will now become the chairman and chief
strategist of Vonage.

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