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Vonage View Shifts

For the first time, some see a reason to buy.

Believe it or not, some people are now seeing some upside in


(VG) - Get Vonage Holdings Corp. Report


The Holmdel, N.J., voice-over-the-Net telco fired CEO Mike Snyder Thursday. Vonage says

it will cut about 10% of its staff in an effort to balance costs in the face of an expensive and potentially devastating legal battle with


(VZ) - Get Verizon Communications Inc. Report


The news continues a long streak of unhappy developments at Vonage. The struggling phone company has delivered investors nothing but punishment since its IPO. Shares have dropped 80% since last May's $531 million debut.

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Yet despite continued risks, some money managers now see room for a little reward.

"The assumption is that it should be at $0, but I think people are overreacting," says one New York hedge fund manager who was looking to buying the stock.

Clearly there is some support for the notion that Vonage's straits aren't as dire as suspected. The stock rose 11% Thursday in the wake of the shakeup.

It has been a brutal few weeks for Vonage on the legal front. Last month, a jury ruled that Vonage had violated three patents related to voice-over-Internet-protocol technology. Late last week, a judge granted an injunction preventing Vonage from signing up new customers. Vonage got an immediate emergency stay on that injunction.

On Friday, Verizon is expected to file a brief with the patent court; Vonage has until Tuesday to file its own brief. Then, on April 24, the federal patent court will start a hearing on whether to uphold the stay throughout the appeal process.

Fans are somewhat encouraged by Vonage's vow to appeal the patent ruling. With the likelihood of a protracted appeal session ahead, there doesn't seem to be an immediate threat to the business, observers say. The company also vowed Thursday to start reining in marketing costs, which should help ease the cash burn.

Wall Street observers point out that the company has a $515 million market cap. That is slightly below the $544 million in cash the company had on its books as of Oct. 31.

Some investors looking at Vonage as a possible buy are wagering that the company will be able to limp along into next year, when it may be able to start generating positive cash flow. One investor said he even sees Vonage as a potential acquisition for a private equity player -- assuming there's cash flow and some legal clarity.

"Where there's volatility, there's money to be made," says the hedge fund manager considering a position. "This is a binary stock," he says. "It's either going to $2 or $5."

For now, at least, some people are thinking it might be the higher of the two prices. Vonage shares rose 33 cents to $3.33 Thursday.