It didn't get a lot of attention but Vonage shares crashed through the $10 barrier to close at $9.60 on Friday - a 43% tumble from its IPO price. Preston Gralla savages Vonage and the fools who bought into the IPO, while raising the well-trodden notion eBay overpaid for Skype. While it's difficult to argue with Gralla's assessment, I would contend there are a few major differences between Vonage and Skype - aside from financial issues. Perhaps the biggest is that Vonage has mostly been seen as an opportunistic investment play by Jeff Citron and his band of VCs more than a disruptive business. On the other hand, Skype is still seen as a cool technology with plenty of potential to make a major impact on how people communicate and do business online (without even getting into whether it's worth $4.1-billion. Perhaps this is the real genius of Niklas Zennstrom and Janus Friis. They sold the world on Skype's disruptive potential, and then convinced eBay to buy into the dream. One point where I will disagree with Gralla is Vonage's takeover potential. Gralla contends he "wouldn't count on" a buy-out but I would argue anything can be sold at the right price. Vonage wasn't worth $2.65-billion (its IPO valuation); and you could argue it's not worth $1.5-billion (its current valuation). But what happens if Vonage shares drop to $5? Would a suitor justify making a $750-million bid for 1.6 million customers?
Addendum: Bloomberg reports that Pali Research downgraded Vonage to a "sell" from "neutral" after analyst Richard Greenfield learned Vonage is offering existing customers a discounted rate of $19.99 if they threaten to leave. "It is increasingly apparent that Vonage is struggling to drive subscriber growth following the IPO," he said in a research note.