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Vonage Holding Corporation: The Conspiracy Theory

Thumbs down on VonageTell me you're not sick of reading or hearing about Vonage (VG) and all of it's financial & operational problems lately?  We know it's the worst IPO in history and that Verizon (VZ) is out to shut them down over disputes with patent VoIP technology.  So how can Vonage survive as a company and what would inspire hopeful investors to buy it's company stock that is down 80% in less than 1 year?

It's the dream of the fast buck my friends, buying a stock on weakness and pray that somehow, the courts rule in favor of Vonage and they recover as a company.  Despite that VG shares went up 12% last Friday, forget the fact that they trade around $3.50 now and the IPO was at $17 a share.  The analysts covering Vonage hate the stock and question how can they turn a decent profit while at the same time paying Verizon for use of its patents?   Vonage owes $58M, plus royalties to Verizon and tack on the new expenses for the court battle...but wait there's more!  Vonage only has $250M in debt.  No problem.  Despite all the bad press Vonage has said it expects to have 2.9 million to 3.1 million customers by year's end. All the major phone companies don't want Vonage in business, they are the VoIP leader, and Vonage's CEO Jeff Citron at age 35 is stuck in the most intense pressure-cooker of his life.

There are a million articles floating around right now that take various viewpoints and opinions on the fate of Vonage.  But here's an angle that hasn't been talked about - the big investors still want their money back.

Let's look big picture, there are currently 154,920,000 Vonage shares outstanding.  Now, let's just for fun price all of these shares at the IPO price, at $17 a share and compare that the price of shares today:

Let's consider the major investors (groups with more than 1 million shares), and look at how much they have to lose:
VG Investorss

Now these guys bought into Vonage at various prices, let's just calculate their loss at an average buy-in at $13 a share:
VG Losses
Despite all the King's men (major phone companies for this story) out for blood against Vonage I can't help but think these major investors would like to get their money back.  Not only would these investors like to get their money back, but these guys want to make a profit, they want a good ROI (Return on Investment).  If you invested a few million dollars in some company, wouldn't you like to get paid for lending them the money?  Of course you would.  So be it the powers that be, these major investors have influence on more than just the current stock price.  I wouldn't be surprised if some goons make a nightly check on Citron's house, just to make sure he hasn't suddenly disappeared to Costa Rica for a "business trip".  Look, I realize you must be saying "What the hell is Phil smoking?", and I'm telling you I put that out hours ago, this is me clean and sober.  We've seen this time and time again, some how, some way, a company with everything going against it makes a triumphant return.  There is a ton of money invested in Vonage, and perhaps the King's men have more power than these big investors and they will burn Vonage to ashes.  But in a this world of CNBC Exclusive stories, back door deals, and court room drama: Corporations in America have a funny way of magically winning

Even Enron went on for years before the scandal erupted and the investors and board of directors made millions before they lost everything.  How many companies do you think faced similar fates but the news just never got out or received the attention it deserved?  The HP spying scandal is one example, how much will we never know that actually happened behind closed doors? 
I love Corporate America
The point I'm trying to make is you, the average Joe investor, only knows what the news and analysts tell you.  Sure you can read a companies' SEC filings, but you don't work there, and even if you did, you're not at the top of the food chain, so what do you really know?

You know what you can know about this situation: Big phone companies are out to kill Vonage.  All I'm saying is think of what you don't know and the vested interested of the rich investors.  If you owe your brother-in-law $200 and he doesn't pay you back, I bet you'll remind him nicely before you go to your sister and rip into her about her lousy-no-paying husband who owes you 200 bones.  If he doesn't pay you back, you can make your brother-in-law's world reallymessy, really quick, and I bet you'll get your money back somehow.  Now up that to lending your bro $500 Million. I'll bet you'll really want that money back and then some.  So think of these big guns that threw down all the cash for Vonage, you can bet Jeff Citron has a few callers that are asking him: "When You owe medo we get paid Jeffy Boy?"  If Jeff can't pay them, he's done in corporate America, but Blockbuster video is always hiring.  However, what good are legs when your kneecaps don't work anymore?  Catch my drift?  Call me crazy, high, a wanna-be-analyst-just-another-no-good-blogger, or worse.  But this guy is betting those rich investors are getting their money back, so why not wager on that?

 Article written by: Phil "Knee-Breaker" McCallister
Article posted on: April 2nd, 2007

Disclaimer: The Author does not own any shares or hold any short/long positions in the securities mentioned in this publication.

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