Vonage IPO a Go!

Joseph Laszlo | February 08, 2006, 12:37 PM

Vonage today filed its IPO documents with the SEC.

Happily I'm not a financial analyst, so I don't have to say whether that's a good thing or not. But I'm excited about the filing just the same, because it finally gives the world a look under the hood of Vonage's business strategy, and I do care a lot about how viable that is (because it feeds directly into how fast the competitive VoIP-based broadband telephony market can grow).

Trading off between speed-of-blogging and depth-of-analysis, I'll just note a couple of things I find interesting:

1.4m subscribers as of Feb '06, 95% of those in the US. No surprise there.

Pretty bubbly economics: fast revenue growth (116%), even faster expense growth (292%) (if you compare first 9 months of '04 to first 9 months of '05), driven by huge marketing spend. Quoting: "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."

In the first 9 months of 2005, Vonage spent $214/gross new customer, relative to $138 the year before. Both these numbers are small compared to the $300+ the mobile operators spend, but the trend suggests Vonage will narrow that gap, unless it shifts strategy.

Churn: stable at 2.11%/month in the first 9 months of both 2004 and 2005. Which seems pretty good to me, could be lower, but could be much higher.

Finally I'll point out that Vonage singles out Net neutrality as a risk factor, saying, in part, "The success of our business relies on customers' continued and unimpeded access to broadband service. Providers of broadband services may be able to block our services, which could adversely affect our revenue and growth." There's lots of other risk factors involved, of course, but it's dead certain this one is going to see a lot of comment.

We're pretty bullish about broadband telephony in the US, reckoning it'll reach about 20M households by 2010 [JupRsch report]. Additionally, my colleague Ian in London has a piece out looking at how European VoIP is shaping up that clients may also find interesting.