Vonage gets pummeled in court again
Posted
Sep 26 2007, 03:44 PM
by
Kim Peterson
Rating:
Tough week for Vonage, the one-time Internet calling darling that has more courtroom drama than a season of "Law & Order." But I think the company could be an attractive acquisition target.

Today an appeals court upheld a verdict against Vonage in a patent case involving Verizon. Now the courts will recalculate how much money Vonage should pay (the previous total was $58 million plus 5.5 percent royalties on future sales). Trading was halted briefly on the stock, and its share price fell 26 percent to 96 cents.
This follows yesterday's news that a jury found Vonage guilty of infringing patents owned by Sprint Nextel. Vonage was ordered to pay nearly $70 million, which caused the stock price to plummet 34 percent. Woe to the investors that got in at the company's $17 IPO price.
But Vonage's problems run much deeper than patent infringement. The company only added 57,000 subscribers in the second quarter, down from 166,000 the preceding quarter. The drop was due to a big pullback in company marketing. And those subscribers came at a price: nearly $290 spent to acquire each one in advertising and other costs.
And worst of all: Comcast, on a roll with its "triple play" cable-Internet-phone package, outpaced Vonage in the quarter to become the country's top Internet calling service provider.
"By better fiscal management and with enough cash in the bank, it can prolong the agony, but ultimately something dramatic needs to happen for the company to dig itself out of this hole."
At least Vonage has a solid base -- 2.45 million subscriber lines. And getting those customers cost a lot of money. The company could be acquired just for its user rolls alone.