The Vonage Rally: With No News Support, Stock Will Plunge

Vonage (VG) have moved from $.46 to $2.63 in three trading days. The shares are already losing momentum, and have dropped to $2.24 on massive volume of over 36 million shares at 10.45 AM.

Watch for the shares to move back, probably toward $1.25, before the end of the week. It is probably already dawning on traders that there in no news to support the rally, and the company has not made any disclosure about the movement 

Vonage made a minor announcement on the 20th. Vonage introduced two new services that dramatically improve the value of its core offering. “Vonage World,” provides unlimited calling around the world to more than 60 countries, including India, Mexico and China for the current flat monthly rate of $24.99.  In addition, the new Vonage Visual Voicemail service extends the company’s presence onto other devices by providing unlimited “readable voicemail” delivered via email or SMS text message. Vonage is the only U.S. home phone service provider to offer voice-to-text conversion at no additional charge. Both services will become basic features of the core Vonage offering.

In the latest quarter ending June 30 VG has revenue of $220 million, down from $228 million in the same quarter a year ago, which is hardly spectacular. The company had an operating profit of $15 million compared to a $2 million loss in the 2008 quarter, but the firm had over $12 million in interest payments.

Vonage still has an ugly balance sheet with only $56 million in cash and cash equivalents and $203 million in debt, net of discounts.

In short, there is nothing to support the rally.

Douglas A. McIntyre