More on the Vonage IPO

The moment of truth is Tuesday at 4pm Eastern.

Update: I chickened out. As the commenter notes, this was gambling, not investing, and I wasn’t sure I had an edge. With a bad story in this morning’s NYT, a discouraging update from theflyonthewall.com, and pricing in the middle of the indicated range at $17, it suddenly didn’t look like there was a reasonable balance between risk and reward, especially since I was sure to get only 1300 shares if the deal proved really hot but was likely to get stuck with 5000 if it turned cold. So I just went to the website and cancelled my offer before the allocations were posted.

Second update Dodged a bullet. The stock issued at $17, opened at $16.30, and is now below $15.

The SEC registration for the Vonage IPO goes effective today (Tuesday) presumably just after the NYSE close at 4 pm EDT. If you’re a Vonage customer and have signed up for the directed-share program, you have exactly one hour after the registration goes effective to cancel your order, or you’re stuck: you have to pay the offering price for however many shares (up to the number you ordered) Vonage decides to sell you, at whatever price, within the posted range of $16-18 per share, it decides to set.

I’m still in, but wavering. Today I got a call from a broker at one of the underwriting firms telling me to avoid the deal. The combination of the softening of the market and Skype’s offer of free VOIP service for the rest of the year has investors spooked, said the broker, and in the long run Vonage doesn’t figure to make money selling what will become a commodity service.

On the other hand, Barron’s on-line subscription service flyonthewall reports that the deal is “many times oversubscribed,” with enough demand from the Vonage customer segment to make it go even without Wall Street money. Flyonthewall also reports that Smith Barney, the lead underwriter, plans to stick within the indicated price range. (If the deal is really hot, presumably toward the top of that range.)

Of course, that may not be right. If other Vonage customers did what I did &#8212 sign up for the deal just to keep their fingers on their numbers, without any commitment either legal or psychological &#8212 then there may be a rash of post-registration cancellations.

Worse, if a large number of them are getting in, as I am, just for a quick trade, we may all be looking around on Wednesday for a greater fool to sell to, only to discover that folly has its local maximum somewhere between our ears. On the other hand, if the institutional fund managers are too chicken not to own the stock in case it’s the next Google, while most of the customers are true believers rather than wannabe arbitrageurs like me, we could get a very nice pop before reality takes hold.

At the moment, I’m inclined to take the gamble. But if I do, and if I get some stock, I’m selling out Wednesday morning for whatever it will bring. I’ll take whatever profit I can, or I’ll take my lumps. But I’m not owning this dog a minute longer than I have to.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: Markarkleiman-at-gmail.com

2 thoughts on “More on the Vonage IPO”

  1. Can I suggest Berkshire Hathaway, maybe?
    When we start flipping IPOs, we are closer to the top of the cycle than the bottom.
    if we like a business model, then by all means we should buy the stock. But if we flip something merely because it is 'hot', then are we not simply subscribing to the 'greater fool' theory of stock investing.
    Isn't there a line: 'in poker, if you haven't figured who the mugg is in 5 minutes, then you are the mugg'?
    (remove at to reply by email)

  2. The cable companies and telcos should take this as a cautionary tale. They are guaranteed to make money off of VOIP because they own the physical assets that must be used by any VOIP scheme. However, their profits derive from developing their physical assets and enabling more uses and higher utilization of their physical assets by their customers. If they decide to be greedy and cut off access to services other than their own, their customers will either support regulation of the carrier (if the carrier is a de facto monopoly) or move elsewhere (if the carrier is not).

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