Novice Investing - Vonage Static Voice

Date: Monday 01st 2008f December 2008 05:00:24 PM

Vonage Static Voice - 04/10/2007

By: Hari Wibowo

Another bad news hampered Vonage Holdings Corporation (VG) on its way towards profitability. Court announced that Vonage is not allowed to sign up for new customers due to court ruling that Vonage infringed three of Verizon's patent for voice over the internet. While Vonage can continue selling its service to existing customers, this verdict is another series of legal battle that put Vonage in the brink of bankruptcy.

As we have discussed several times, Vonage cannot survive by merely offering Voice Over IP. It has broadened its focus by offering wireless, broadband as well as web hosting services. That has proved to be crucial things now considering that Vonage is not allowed to sign up for new VOIP customers at best case. At worst case, the court may rule Vonage to shut down its existing VOIP services due to the forementioned patent infringements.

With the court decision of blocking Vonage to acquire new customers, time is running out for Vonage as a going concern. Balance sheet spot a $ 230 Million in positive net cash lately. Cash burn for 2005 fiscal year was - $ 261 Million. In the nine months ending on September 2006, Vonage burn rate was $ 220 Million. Since no new subscriber is allowed, this burn rate will happen for 2007 and 2008 unless Vonage can grow revenue fast enough from its other new services. Thus, at this point, the risk of Vonage shutting down is higher after the recent court ruling. Meanwhile, share price already plunged to $ 3 per share, an all time low for Vonage

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Vonage Holdings Corp. (VG) or any other securities.

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