June 1, 2006 2:47 PM PDT

Vonage customers must pay up for IPO shares

Internet telephony provider Vonage has laid to rest speculation that it would buy back shares of its stock that its customers bought as part of its initial public offering.

Shares in the company have dropped almost 30 percent from its $17 initial price tag since the stock debuted May 24. The company had reserved some 13.5 percent of the stock issued for the IPO for customers.

Late Wednesday, the company released a statement saying customers are "obligated to purchase their share allocation from the underwriters."

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"To be clear, we have not offered and are not offering to repurchase any of the shares of common stock from our customers," the statement said.

Speculation circulated earlier this week after Vonage intimated it might not force customers to pay up because it didn't want to alienate them. The company said in a statement issued Tuesday to CNBC's Squawk Box that it would pay for shares if some customers didn't.

Some analysts believe that shares of Vonage, which has never been profitable, were likely priced too high at the time of the IPO. But at least one analyst, Albert Lin of American Technology Research, believes the market has overreacted and that Vonage was priced appropriately given the state of the current marketplace.

Lin set a price target for the company of $20 over the next six to 12 months. A big component of his optimistic view is the fact that Vonage customers have been very loyal to the company. Vonage has a low "churn" rate, the rate at which people switch services, of about 2 percent a month.

"Despite the bearish views on competition, the fact remains that Vonage is the most successful competitor at convincing customers to join, and more importantly, to stay with the company as a carrier," Lin said in a research note published Tuesday.

Vonage had hoped to cement its customer loyalty by allowing customers to participate in its IPO. But now some customers writing on message boards say they're angry about how the IPO was handled. Some have even threatened to drop their service.

Other customers who bought shares in the IPO have complained about glitches with the Web site that was used to purchase shares. These customers said they were unaware they had bought any shares in the company because after they clicked through on the site they saw a Web page that said they did not own any shares or owe any money. Only after the IPO did some people realize they owed money for the stock.

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4 comments

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Stick a fork in 'em. They're done.
Vonage is toast. They've been toast from the day they went into
business. Did they really think the big telecomms would sit back
and let them eat into their profits? Yes, Vonage started the voip
market. Yes, Vonage was the innovator. But now the big players
have taken notice and it's all over. Nobody ever got fired for buying
IBM and they won't get fired for buying at&t either.
Posted by lkrupp (1608 comments )
Reply Link Flag
Stick a fork in 'em. They're done.
Vonage is toast. They've been toast from the day they went into
business. Did they really think the big telecomms would sit back
and let them eat into their profits? Yes, Vonage started the voip
market. Yes, Vonage was the innovator. But now the big players
have taken notice and it's all over. Nobody ever got fired for buying
IBM and they won't get fired for buying at&t either.
Posted by lkrupp (1608 comments )
Reply Link Flag
They must be doing something wrong??
I can't understand why they have been losing money unless it's their advertising budget! WOO HOO WOO HOO HOO.

I am the CEO of a wholesale VoIP provider who provides network service to companies similar to Vonage and there is NO WAY they shouldn't be raking revenue in.

Though who's complaining? As the mighty must fall.
Posted by tsgglobal.com (3 comments )
Reply Link Flag
They must be doing something wrong??
I can't understand why they have been losing money unless it's their advertising budget! WOO HOO WOO HOO HOO.

I am the CEO of a wholesale VoIP provider who provides network service to companies similar to Vonage and there is NO WAY they shouldn't be raking revenue in.

Though who's complaining? As the mighty must fall.
Posted by tsgglobal.com (3 comments )
Reply Link Flag
 

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