Vonage Holdings Corp. (NYSE:VG)

CAPS Rating: 1 out of 5

The Company is a provider of broadband Voice over Internet Protocol services to residential and small and home office customers.

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2
Player Avatar TheStankometer (< 20) Submitted: 1/20/2011 12:43:47 AM : Underperform Start Price: $3.13 VG Score: +48.23

'Twas on 1-10-11 when I smelt a musty odor coming through the lenses of the Smelloscope.

Vonage Holdings (VG) was the culprit. VG only received 30 points out of 100 in the Smelloscope scoring system. Here's why:

-Poor earnings
-A negative book value per share
-Negative Net Profit Margin, ROA% and ROE% and concerning 5 year trends
-Unfavorable insider activity
-Inconsistent 5 year debt to equity ratio

The bottom line:

I don't claim to know a lot about Vonage. But I do know their fundamentals don't look good. And I know that there are a lot of other companies in their industry which are significantly outperforming them.

That being said, I wouldn't put real money on this down-thumb because they appear to have some potential for recovery and eventual growth. One indicator that they are doing something right, is that they don't have a whole lot of long term debt and a very impressive price to sales ratio.

Regardless of VG's impressive price to sales ratio, they're still stinky enough to set off the stankometers and ranked in the lowest 10% of any of the stocks the Smelloscope has sniffed.

So thumbs down it is.

~djshagggyd
(official nose of the Stankometer)

Full Discloser:
TheSmelloscope is a value rating system created to evaluate stocks for fun. It is operated by a novice investor named djshagggyd. NOVICE being the key word. Do not follow the Stankometer's advice without conducting your own due diligence.

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Member Avatar dgroves0 (< 20) Submitted: 2/26/2011 11:28:39 AM
Recs: 2

"I don't claim to know a lot about Vonage."

Seems obvious, but that is completely understandable. You have to dig a little here and understand what is happening!

First and foremost, Vonage has turned around,
Fundamentaly:
http://www.acronet.net/~dgroves0/turnaround.JPG
Technically:
http://www.acronet.net/~dgroves0/7year.jpg

In fact looking at the last 3 Institutional reports, in the last 6 months, institutions have bought up 18% of the shares, to gain a 52% ownership of this company.

I will try to explain a couple of your negative points, and why digging in can be profitable.

A little history, Three years ago Vonage was beat down by lawsuits, a need to refinance debt, and frankly poor management. They had high churn, were bleeding customers, and seemed to be falling behind the competition. Many thought during this time period, they would be going Bankrupt, and PPS went down to reflect that.

Over the next year, They settled the lawsuits, Refinanced at Loanshark terms during the worst of the economic collapse, at 20% interest, with convertables, and hired a new CEO, Marc Lefar, Who was known as the "savior of Cingular" (Remember Cingular bought ATT wireless, not the other way around).

http://www.wtae.com/r/17035887/detail.html

So Lefar went to work with a lot of negatives:

Earnings reports were distorted by Write Downs - Cash and Non cash, because of the structure of the loans. Every time share price went up, there would be a non cash expense due to the loan. Paying 20% interest

High Churn 3.7%, losing customers,

No new products or services.

Bad customer service

Luckily, during the worst economic downturn since the great Depression, Revenues stayed Stable:
http://www.acronet.net/~dgroves0/Revenue.JPG

So Lefar went to work.

Customer service was improved, they got rid of the "contract" and all it's onerous details that costed both the company and the customer.

Better products and simpler devices were introduced.

Churn went down to 2.4%

There was a leveling off of Customer losses and In the 4th Quarter '10 a net gain was booked.

And for the 1st time in it's history, Vonage felt comfortable enough to give Forward Guidance.
http://www.acronet.net/~dgroves0/Guidance.JPG

They are reducing their SGA and Marketing costs
http://www.acronet.net/~dgroves0/SGA.JPG
http://www.acronet.net/~dgroves0/Marketing.JPG

They have added Vonage World, - call 70 different countries
They have added mobile apps.
They are working on International expansion.
They are working on Device and social networking integration

THE BIGGEST THING is that during the 3rd and 4th quarter, Citi and Duetche Bank went over Vonage's Financials and Business Plan and Finalized a Debt Restructure, at HALF THE INTEREST RATE, and better, less restictive terms. Vonage said this would add 40% to their bottom line.

NO MORE SURPRISE WRITE DOWNS! The first Quarter 2011 earnings CC (May 5th?) will be a "clean" report.
Expected:
$41+ million EBITDA
$20+ million FCF
$.07+ GAAP EARNINGS

As far as Insider activity, 2 members of the board are on an AUTOMATIC selling program.

David Morton, who is 73 years old - And Jeff Citron, who controls 43 million shares, and was advised to get his eggs out of one basket.

If he continued at the present rate, he would sell out in 12 years. In fact many look at his dibursement as a good thing.

So things are really changing at a swift pace, and the May 5th CC? will be the first clue, for many.

Member Avatar TheStankometer (< 20) Submitted: 3/24/2011 4:28:35 PM
Recs: 0

Wow dgroves0!!

Thank you so much for all the info. I wish I would've read your reply sooner... I've lost a lot of points on this downthumb :(

Oh well... live and learn!

Thanksa again dgroves0,

~djshagggyd (official nose of the stankometer)

Member Avatar DrGoldin (99.71) Submitted: 1/5/2013 2:36:56 PM
Recs: 0

Actually, Stank, you're well in the green with this one.

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