Vonage IPO will pay to advertise

Janet Babin May 23, 2006

MARK AUSTIN THOMAS: After months of speculation, it looks like Vonage will finally become a publicly traded company this week. The Internet phone provider’s initial public offering raise $550-million dollars. But, what’s in it for investors? From the Innovations Desk at North Carolina Public Radio, Janet Babin answers that question.


JANET BABIN: Ubiquitous commercials with a catchy tune have helped Vonage snare 1.6 million customers. But all that advertising can bleed a company’s coffers dry. In the first quarter, Vonage spent more than $88 million feeding the marketing beast.

Daniel Berninger is an analyst with Tier One Research. He says Vonage will likely use the IPO proceeds on more marketing if it wants to outpace rivals for new customers.

For investors, Berninger says the chance to buy Vonage stock could be a once in a lifetime opportunity — because the company has the potential to become the next Google or Yahoo:

DANIEL BERNINGER: What you’re tyring to figure out is: Is Vonage one of these real name-brand companies that will be around for a while, or does it have some sort of obstacle that’s going to shut it down?

In an unusual move, Vonage has set aside 14 percent of its 31 million stock shares for customers.

I’m Janet Babin for Marketplace.

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