Mark Evans does some great analysis of the rumor I reported on yesterday of BellSouth buying Vonage. Does it seem logical to me that each Vonage customer is worth $4,375? No way. My editorial team beat the bushes looking to confirm this story and as you might expect BellSouth had no comment.
An area that Mark didn’t explore in this blog post is the hype surrounding XM and Sirius satellite radio. This hype is backed up with inflated valuations as well. Is Vonage a company that should be compared more closely to XM than 8x8? Yes in my opinion as they are the mindshare leader with no close number two.
If you follow me down this path then you see that logic doesn’t play into the equation at all. I am not sure that comparing Packet 8 to Vonage has any merit either. Packet 8 is a brand that is unknown and Vonage is a brand that is well-known.
If Vonage was to go public, a 3-4 billion dollar valuation doesn’t seem so out of whack to me. XM has a market cap of 8 billion and Sirius is valued at over 9 billion.
Sure satellite radio and VoIP are different businesses, etc. I understand all that but when you are a category leader and you go public you get a premium from Wall Street. A buyer would have to overpay for such a company to purchase them before they go public.
Mark described this all as a nice summer story… One that Jeffrey Citron hopes will have a happy ending I am sure.
More On BellSouth Vonage Purchase
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Wow! If the valuation and subscriber count is accurate, this would value Vonage at about 15x yearly sales (assuming an ARPU of roughly $25.00/mo). I guess any potential buyer would have to pay a premium for:
- the Vonage name,
- developed expertise in VoIP,
- the growth factor,
- enterprise value of the company.
How long can this vonage model be sustained? They don't own the network and have no control over the quality which I believe will become a huge factor going forward.
It amazes me that that a company like Covad Communications, the most mis-understood name in telecom, is valued at 0.8x sales.
George
So, what's up with the BLS - Vonage buy out? Are you (your source) still standing by this claim?
My source still stands behind what they told me. Interestingly it seems every blogger on earth thinks this marriage is impossible. We will have to wait and see.