Vonage: Worth More In Pieces

Last September, Vonage (VG) had a share price of about $7.25 and a market cap of $1.1 billion. The company had two million subscribers. That valued each subscriber at $550. When the company had its initial public offering, the figure was over $1,200 per subscriber. Today, the value of those subscribers is about $210 based on the company’s market cap at $550 million.

With the announcement that a court has prevented Vonage from signing up new customers because it violates certain Verizon (VZ) patents, that value per subscriber is likely to fall again. An appeals court has stayed the ruling, but that may not last for more than a few weeks.

The problems raise the question of whether Vonage shareholders would be better off if the company’s assets were sold to one of the big cable companies like Comcast (CMCSA). The cable giant might pay $700 or $800 per subscriber to get well over two million customers for its growing VoIP business. It might even get these customers to take some of its higher end cable products like video on demand.

All of this assumes that Verizon does not have patent claims against cable firms like Comcast. So far, the phone company has not moved against its rivals, but, if it does, Vonage’s subscriber based might lose more value. A blanket prohibition for selling VoIP due to Verizon patents would set the entire industry back.

But, assuming that Verizon has not sued cable companies because they do not have technologies that are covered by the phone company’s patent portfolio, Vonage is worth more sold off to a company that can use its subscriber base than it is trying to fight a losing battle to stay afloat.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.