"AND THEY"RE OFF..."
As one can see on the SEC site, internet telephony (aka VOIP) pioneer Vonage has finally filed for a $250 million IPO after months of speculation. This follows a series of private financing rounds that have already amounted to almost $395 million according to the filing. The company has over 1.4 million subscriber lines as of the time of the filing.
Andy Abramson over at VOIP Watch notes:
"This is for a lot less than the money people were originally expecting VONAGE to raise, and given their last two rounds, one has to wonder what the valuation is for the entire company."
What's giving me the greatest sense of deja vu vis a vis Internet IPOs from the nineties, is the installation of a brand new CEO right at the filing of the IPO.
Again, as Andy observes,
"Jeffery Citron steps down as CEO Michael Snyder takes over. Snyder signed an agreement and will join the Vonage board of directors and become its Chief Executive Officer.
Mr. Snyder was the President of ADT Security Services, Inc., a subsidiary of Tyco International Ltd., from 1997 to 2006. He is expected to assume his duties with Vonage on February 27, 2006.
Citron takes a global role for Strategy as Chairman."
Financially, the company also reminds us of the nineties, since it's currently in the process of rapid revenue growth at the expense of rapid growth in net losses. As the filing proudly notes:
"We have invested heavily to build a strong brand that helps drive our subscriber growth. During 2004 and the first nine months of 2005, we spent an aggregate of $232.4 million on marketing.
We employ an integrated marketing strategy that includes extensive television, online, print and radio advertising, a customer referral program and a range of other promotions, all designed to build our brand, attract new customers and retain existing customers.
For example, according to Nielsen//NetRatings, an independent Internet media and market research firm, we were the top advertiser on the Internet from January to September 2005, based on estimated spending.
We employ a broad distribution strategy and acquire customers through our websites, our toll free numbers and our presence in leading retail outlets, including Best Buy, Circuit City, CompUSA and RadioShack stores.
We have experienced rapid revenue growth since our inception. Our revenues were $18.7 million in 2003, $79.7 million in 2004, and $174.0 million for the nine months ended September 30, 2005. While our revenues have grown rapidly, we have experienced increasing net losses, primarily driven by our increase in marketing expenses. From the period of inception through September 30, 2005, our cumulative net loss was $310.0 million.
Our net loss for the nine months ended September 30, 2005 was $189.6 million. During the same nine-month period, our marketing expenses were $176.3 million. To grow our revenue and customer base and enhance awareness of our brand, we have chosen to spend significant amounts on our marketing activities, and we intend to continue to do so.
While this strategy will have the effect of delaying or preventing us from generating net income in the near term, we believe that our focus on growth will better position us as a strong competitor in the long term.
So they'll continue to spend on customer acquisition as long as the public investors let them, just as their private investors have done so to date.
As I mentioned yesterday, we're returning to the days of increasing customer acquisition costs a la AOL in the nineties. It's not unthinkable for Vonage to also pay PC vendors like Dell et al to be included as the internet telephony provider on new PCs, competing with companies like Google, eBay/Skype, Microsoft, Yahoo!, AOL and others.
It'll be interesting to understand more details of the offering, and glean insights into Vonage's business in the weeks ahead as the IPO rolls on. In the meantime, this IPO marks the second major financial milestone in the internet telephony business, following last year's $4.1 billion acquisition of Skype by eBay.
I've said before that voice is rapidly becoming just another application on a broadband-driven, wired and wireless internet. But the business models that emerge around this application are going to be varied in form and substance indeed.
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