WHERE IS THE RISK ?
TWO YEARS AGO, Vonage was in trouble.
They had 3 major lawsuits going that threated their very existence.
They had debt that had to be refinanced in a tightening credit market.
Since their IPO, they had bled cash.
Shorts had a heyday trading this from the $17 IPO to $1, they loved vonage
Churn was in the 3% range, when 2% is the average for telcos.
Last year the whole financial world collapsed, and PPS was forced down to $.32.
BUT WHERE IS VONAGE NOW? There was only one analyst covering (not too well apparently), and the company was way under the radar.
1.) The Lawsuits were settled - Vonage is still here
2.) The Debt was refinanced - Vonage is still here
3.) One year ago, they hired Marc Lefar, who is Known as the "savior of Cingular" , who after turning Cingular around, was involved in the sale to AT&T
4.) Vonage has been Cash Flow Positive the last 3 quarters, Profitable the last two quarters, and had EBITDA of $10 million in the first quarter and $31 million in the second quarter
5.) The shorts are still here as shown by volume, but I think living in the past glories. May be a good thing!
6.) Churn has stayed high, but their new products (Vonage World, Transcribed voice, SmartPhone Apps) and focus on customer service, should all work together to improve churn and add net customers.
7.) PPS has moved from that $.32 range to the $1.50 Range
HOW RISKY IS THE $1.50 RANGE TODAY? SHOULD YOU BUY OR SELL?
Let's have some perspective. JUST HOW MUCH IS VG UNDERVALUED AT PRESENT PPS?
BUYOUT VALUATION:
Skype, a company that is very simular to VG was just sold for 4.5X revenue
SKYPE VALUATION WOULD PUT VONAGE PPS AT: $21
COMPARISON VALUATION by Price/Sales (ttm) and Enterprise Value/Revenue (ttm)
Vonage Holdings Corporation (VG)
Price/Sales (ttm): 0.30
Enterprise Value/Revenue (ttm): 0.49
Here are Vonages MAIN COMPETITORS
8x8 Inc. (EGHT)
Price/Sales (ttm): 0.92
Enterprise Value/Revenue (ttm): 0.68
Verizon Communications Inc. (VZ)
Price/Sales (ttm): 0.83
Enterprise Value/Revenue (ttm): 1.45
AT&T, Inc. (T)
Price/Sales (ttm): 1.21
Enterprise Value/Revenue (ttm): 1.77
Comcast Corporation (CMCSA)
Price/Sales (ttm): 1.26
Enterprise Value/Revenue (ttm): 2.09
Lets average the competitors numbers:
Average Price/Sales (ttm): 1.055
Average Enterprise Value/Revenue (ttm): 1.49
COMPARISON VALUATION WOULD PUT VONAGE PPS AT:
Average Price/Sales =============== $5.27
Average Enterprise Value/Revenue == $4.56
We have a company that was profitable the last two quarters, and just started a program that should significantly raise revenues, and compared to the competions Valuations should be at least $4.56 PPS.
WHERE IS THE RISK AT $1.50, except to the shorts?
Can anybody put out the numbers that show it is overvalued?
Can't wait for the next Quarterly report! |
