The Vonage IPO

If you’ve been a Vonage customer since December, you have the opportunity to buy Vonage stock at the IPO.

1. It’s a complicated deal, in which you commit to buying up to some number of shares, and Vonage in its wisdom then decides how many to sell you. Presumably, if the deal is oversubscribed and therefore likely to pop, the customers won’t get much, while if it’s undersubscribed and likely to tank, you’ll get everything you ask for.

2. In addition, Vonage wasn’t under any obligation to offer stock to its customers. Doing so might be just a nice gesture, or it might be an act of desperation decided on after the underwriters told the company, “Hey, we’re not sure we can move this dog.”

3. The Web buzz is that the deal is overpriced and the company likely to go the way of Netscape: the developer of a cute idea that somebody else makes money on.

4. The Vonage CEO has such a shady record that the SEC more or less made him step aside as a condition of letting the registration go effective.

Ergo: This looks like a deal you should run away from as fast as you can.

BUT. I just talked to a broker at one of the underwriters and asked him about getting stock at the IPO from him. He said, “Fuhggettabadit. The institutions are crazy for this deal, and the retail customers are going to get frozen out. Our whole branch might get ten shares for our customers.” He’s sure it will pop at the opening.

Full disclosure: Taking stock market advice from me is a sure way to build a small fortune, if you start with a large fortune. Proceed at your own risk. But for Heaven’s sake, don’t get greedy. If you play it for the pop, sell it if it pops. “Bulls make money; bears make money; hogs get slaughtered.”

Update On further consideration, I decided to pass. That turned out to be the right move. Unfortunately, that uses up my annual quota of correct stock-market decisions.

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

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