Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Is Vonage Holdings Corp. (VG) Still Undervalued?

Page 1 of 2

Since Vonage Holdings Corp. (NYSE:VG)‘s IPO, the stock has been on a near-constant downward slide that destroyed early investors’ positions in the business. Analysts and investors blamed management for failing to adapt to new trends in the industry, spending too much on marketing, and a drastically overvalued IPO price. But the last six months have been a great turnaround for the voice-over-Internet pioneer, and the stock has responded with a near-30% climb. In the recent earnings release, the company proved it remains competitive in the Skype era and that a strong marketing campaign can yield big results. Let’s take a look at the earnings and see if Vonage still has room to run.

Vonage Holdings Corp. (NYSE:VG)Cheap!
At less than nine times forward earnings, Vonage would appear to be a relatively inexpensive business for one deeply involved in the Internet industry. And this is even after the company’s aforementioned 30% run-up in the past few months. Does Wall Street ignore the company, or does Mr. Market just not believe in the long-term vitality of voice-over-Internet?

Realistically, it’s because many investors decided the company just wasn’t worth their time after years of dismal stock performance. Since its IPO in 2005, the stock has lost 80% of its value, at one point bottoming out at $0.43 per share from an initial price of $13. Vonage went public at an inopportune time, just as Microsoft Corporation (NASDAQ:MSFT)‘s Skype was taking off and offering a similar product for free. It crushed Vonage’s business.

But let’s fast forward to last week, when the company released its fourth-quarter and full-year 2012 earnings. Management was thrilled to announce that the company is nearing completion of its transformation aimed at bringing the company back to relevance. Major cost restructuring efforts have yielded tens of millions in savings over the last few years, and free cash flow has increased greatly along the way. The company also re-evaluated its credit situation and came out paying substantially lower interest rates this past year.

The earnings scoop
Starting with the full year, the company generated $123 million in EBITDA, a major improvement on its net losses in prior years. Churn rates are coming down, with only 15,000 line losses in 2012, down from 30,000 in 2011. Even when the company was failing in the markets, it was generating plenty of cash flow — $350 million for the past three years. The free cash flow was a big reason that some top-tier value fund managers, such as Bill Martin of Raging Capital, bought the stock like crazy in recent years.

Quarterly revenue was up just a couple of points (but above Wall Street expectations) based on increased call traffic and a major effort toward international expansion. The company has recently minted agreements with affiliates in the Philippines and Brazil to help drive growth among low-price-point-oriented clients abroad. International calls from North America were up 40% at year’s end.

In addition to an international focus, the company is wisely pouring lots of resources into refining its mobile app. Management says download numbers are growing at an accelerating pace along with more and more usage.

Overall, management has been effective at turning the company around and generating the all-important free cash flow via organic revenue growth.

Let’s talk value
Vonage is not the uber-cheap buy it was just a few short months ago, but there is still room to run. The company is no longer in deep turnaround territory, but perhaps approaching a major growth run. It’s successfully turned the corner and is adding subscribers while forecasting much more for the future.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!