Vonage Files IPO

Internet phone player Vonage filed to raise $250 million in an initial public offering and named a new CEO.

The Holmdel, N.J., company tapped Mike Snyder as CEO. Snyder was president of Tyco's (TYC - Cramer's Take - Stockpickr) ADT security unit. With Snyder's arrival, founder Jeffrey Citron becomes chief strategist, where he "can dedicate his time to focusing on moving the company into new product areas, technologies, growth opportunities and employee culture," Vonage said.

Vonage said the IPO will be led by Citigroup, Deutsche Bank Securities and UBS Investment Bank.

Like so many companies in the faster-growing areas of tech, Vonage has been losing money and plans to continue to do so. "Our revenues were $18.7 million in 2003, $79.7 million in 2004, and $174.0 million for the nine months ended Sept. 30, 2005," the company's prospectus says.

"While our revenues have grown rapidly, we have experienced increasing net losses, primarily driven by our increase in marketing expenses. From the period of inception through Sept. 30, 2005, our cumulative net loss was $310.0 million. Our net loss for the nine months ended Sept. 30, 2005, was $189.6 million. During the same nine-month period, our marketing expenses were $176.3 million.

"To grow our revenue and customer base and enhance awareness of our brand, we have chosen to spend significant amounts on our marketing activities, and we intend to continue to do so," Vonage adds. "While this strategy will have the effect of delaying or preventing us from generating net income in the near term, we believe that our focus on growth will better position us as a strong competitor in the long term."

The company also notes what it calls Citron's "past background."

  "Prior to joining Vonage, Mr. Citron was ... one of the principal executive officers and largest stockholders of Datek Online," the prospectus notes in its risk factors section. "During a portion of the time Mr. Citron was associated with Datek Securities, the SEC alleged that Datek Securities, Mr. Citron and other individuals participated in an extensive fraudulent scheme involving improper use of the Nasdaq Stock Market's Small Order Execution System, or SOES.

"Datek Securities (through its successor iCapital Markets LLC), Mr. Citron and other individuals entered into settlements with the SEC in 2002 and 2003, which resulted in extensive fines, bans from future association with securities brokers or dealers and enjoinments against future violations of certain U.S. securities laws. The NASD previously had imposed disciplinary action against Datek Securities, Mr. Citron and other individuals in connection with alleged violations of the rules and regulations regarding the SOES."