Vonage Facing Trouble: Falling Shares, Possible Lawsuits, and Fierce Competition

The theory is that you have to spend money to make money, and Vonage has followed that theory to the hilt. Their marketing campaigns have acquainted millions of television viewers with the company, and their online spending continues to pump ads to Internet browsers.

It's this very tactic that has caused the company to operate in the red since it opened in 2001. Add to that the falling shares, more than 30% drop since Vonage's debut, possible lawsuits, and some fierce competition, and you end up with a company that is staring in the face of coming storms.

Shares and Lawsuits

The Internet phone company, Vonage, debuted in the stock market as the year's biggest failure. Falling shares and reports by analysts like Richard Greenfield from Pali Research urging shareholders to sell have put a cramp on Vonage's finances for some time, and the negative media generating attention to Vonage isn't boosting hopes of rounding the corner.

In a report Richard Greenfield released, he said that his recommendation to sell Vonage shares revolves around the rise in customer cancellations and still-higher marketing expenses. "Despite our increase in rating, we remain concerned that near-term results may be impacted by higher churn and/or marketing expenses resulting from the troubles surrounding the IPO's directed share program and the negative media attention Vonage has received since their IPO."

The latest backfire the company is facing is all about those shares. When Vonage filed their prospectus with the Securities and Exchange Commission and emailed prospective participants, their goal was to boost customer loyalty. Instead, the email they sent failed to contain a link to the prospectus itself, and has raised concerns that the email offer and the first page of a website about the initial IPO offering (vonageipo.com) could be an illegal offer in violation of securities laws.

Vonage's share prices tanked after the IPO.