Vonage Files for IPO - InformationWeek

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Vonage Files for IPO

Vonage Holdings Corp. files for an initial public offering of $250 million, and appointed a new chief executive.

Vonage Holdings Corp. on Wednesday filed for an initial public offering of $250 million, and appointed Mike Snyder, former president of security systems firm ADT, as chief executive, replacing founder Jeffrey A. Citron.

In its prospectus to the Securities and Exchange Commisssion, the Internet telephony provider did not list the number of shares being offered or an estimated IPO price per share. A date for the sale also wasn't disclosed. The underwriters of the IPO, however, were listed as Citigroup, Deutsche Bank Securities and UBS Investment Bank.

Vonage listed the "proposed maximum aggregate offering price" was $250 million, but that number is likely to change leading up to the IPO.

In giving up his post as chief executive, Citron becomes chairman and chief strategist of the Holmdel, N.J., company, focusing on taking the company into new product areas, technologies and growth opportunities, the company said. Snyder, who was president of ADT since 1997, will take over the day-to-day operations. ADT is a unit of Tyco International Ltd.

Vonage said the IPO was necessary for the "expansion of our business, including funding marketing expenses and operating losses." In addition, the public funds could be used for acquisitions.

The company has spent heavily on marketing to increase its customer base to 1.4 million subscriber lines. During 2004 and the first nine months of 2005, Vonage spent $232.4 million on marketing. Revenues since 2003 have risen from $18.7 million to $174 million in the nine months ended Sept. 30, 2005.

Marketing expenses, however, has cut into the company's bottom line. Vonage's net loss from its inception to Sept. 30 of last year was $310 million. In the first three quarters of 2005, the company lost $189.6 million, while spending $176.3 million on marketing.

Nevertheless, Vonage plans to continue spending heavily on marketing to drive growth. "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," the company said in the SEC filing.

Among its risk factors, however, is competition from companies with greater financial resources. EBay Inc, for example, acquired Internet telephony vendor Skype, last year. In addition, major telephone companies, such as AT&T, are moving into the market for voice over the Internet.

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