Web phone firm's IPO aims to raise $563.4 million

April 29, 2006|By BLOOMBERG NEWS

WASHINGTON -- Vonage Holdings Corp., unprofitable since it began offering Internet phone service four years ago, is seeking $563.4 million in an initial public offering to boost advertising and fend off new competitors.

Vonage will sell 31.3 million shares, or 20 percent of its stock, for $16 to $18 each, according to a regulatory filing yesterday. The sale would value Vonage at about $2.82 billion.

The money will allow Vonage to continue a marketing campaign as competition increases from cable and telephone companies. Costs to advertise its Web-based calling service increased to $88 million last quarter.

While Vonage's spending racked up $361.2 million in losses in the past three years, it enabled the company to expand its customer base 19-fold to 1.6 million and offer more services.

"This will be the money they need ... to build that vision," said William Stofega, an analyst at researcher IDC in Framingham, Mass.

The company reported yesterday that its first-quarter net loss widened to $72.8 million from $60 million on the surge in marketing spending. Sales increased to $118.9 million from $40.7 million.

Vonage shot to fame by offering Voice over Internet Protocol (VoIP) calls at lower rates than traditional phone operators. The company offers calling packages as low as $14.99 that include 500 minutes anywhere in the U.S., Canada and Puerto Rico as well as features such as voice mail, caller ID and three-way calling.

"We are pursuing growth, rather than profitability, in the near term to capitalize on the current expansion of the broadband and VoIP markets," Vonage said yesterday. But it warned that the strategy may not work and that it may never reach profitability.

The expansion has led to $361.2 million in losses in the past three years. Marketing spending rose from $11.8 million in 2003 to $243.4 million in 2005.

Venture capital and investment firms New Enterprise Associates, Bain Capital, 3i Group PLC, Institutional Venture Partners and Meritech Capital Partners will own 45 percent of the company. Chairman and founder Jeffrey A. Citron will own 31 percent.

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