Vonage shares fall in debut
NEW YORK – Shares of Vonage Holdings Corp., the Internet telephone pioneer, dropped sharply in their trading debut Wednesday, dismaying customers who had been given a chance to participate in the initial public offering.
The shares closed at $14.85 on the New York Stock Exchange, down 12.6 percent from the offering price of $17 set late Tuesday.
It was the worst first-day drop for an IPO so far this year.
The drop was surprising, considering pre-IPO demand had appeared healthy. The 31.25 million shares sold in the middle of the expected range $16 to $18 each under the ticker symbol “VG.”
James DeStefano, an IPO analyst at Renaissance Capital, said the market appeared to be focusing on the long-term risks to Vonage’s business model, which involves heavy spending on advertising to draw customers. The company has been unprofitable and doesn’t expect profits anytime soon. At the same time, competition is increasing.
Vonage’s 1.6 million subscribers plug their phones into adapters that connect to their broadband Internet connections. Under one of its plans, it charges $25 a month for unlimited calling to the United States, Canada and parts of Europe.
“Meanwhile, MasterCard Inc. prepared to end four decades as a private entity by making its own debut on the NYSE today.
The Purchase, N.Y.-based credit card association – the world’s second-largest credit card brand – is expected to raise $2.6 billion, according to conservative estimates, in its initial public offering, making it among the biggest stock flotations in recent years. By comparison, Google Inc. cashed out at $1.7 billion after its much-hyped first day as a public company in 2004.
Most analysts contend that the credit card pioneer, which is owned by the 1,400 banks that issue its cards, will have no problem attracting investors when it begins trading under the stock ticker “MA.” MasterCard plans to offer a 46 percent stake by issuing 61.5 million shares priced in the range of $40 to $43 per share.
The real uncertainty lies in what kind of an appetite Wall Street has for a company fighting dozens of lawsuits in which investors could be responsible for huge legal fees and damages. Litigation – including anticompetitive claims – has been the biggest question for investors ahead of the offering. But it’s also a big reason why the IPO is being undertaken in the first place.
MasterCard and larger rival Visa International face ongoing legal battles over what are known as interchange fees, which retailers pay the associations to process credit and debit card transactions. Merchant groups have already filed a class-action suit against the card associations alleging unlawful price fixing of fees that hurt both merchants and consumers.
Visa, which is also owned by member banks, has said it doesn’t plan to go public.
Once the IPO is completed, MasterCard intends to pump $650 million of the proceeds into a war chest to fight the litigation.