Everyone is counting Vonage out, and I’m not exactly not doing that, but while I think that they are not that far from dead, I do believe the current company as it sits is in huge trouble, which is stating the obvious.
2.2 million customers at an average of 20 dollars a month is 40 million and change in cash flow. Almost half a billion in the bank is working capital. Now even after you remove their churn rate of customers who cancel Vonage still has one heck of an attractive customer base to work with as leverage.
While there is some speculation that Verizon will end up with Vonage, I don’t think so. If I was an investment banker I’d be looking at who has the IP in house to sell the customer base to, because Vonage doesn’t really have much else. They have their brand name, which while highly known, is hardly full of “brand equity” as well as some people who are fairly good at direct marketing and of course their customers.
So who are the prospective buyers beyond Verizon? Earthlink for one. Cisco for two. Telstra for three. AT&T for four. While people may wonder what pipe I’m smoking, or really which wine I’m drinking, the reality of the matter is to get Vonage’s user base for anything up to half a billion dollars is worth it to anyone who wants to be the next generation phone company. First you would be basically buying Vonage for their own cash. Even after you pay off Verizon, fire the staff, you’d still have roughly 1/2 of the customers as I do expect up to 50 percent defection on the high side. Since all four of the companies I suggested have IP that makes VoIP happen its just a matter of giving them new Telephone Adapters which Linksys makes that are configured for a new network.
At 20 million a month, less costs to operate, figure a net margin of 40 percent, that would be 8 million free fall cash per month (I’m being very conservative as Vonage’s current marketing budget and income would cause different numbers to be at work) and you have a roughly 100 million dollar end of year profit. With any kind of growth Vonage pays for itself without any new customers in 5 years or less.
So with a sale to one of the companies I suggested the shareholders would actually have a chance of seeing something some day…