Vonage stock tanks after IPO

Analysts have criticised Vonage's business model

Vonage's share price plummeted nearly 24 per cent in the VoIP provider's first two days of public trading. The stock sale was intended to fund future growth.

The company sold more than 31 million shares on Tuesday at a total value of $531m. Trading volumes on the first day reached 34 million shares.

But analysts have raised concerns over the company's future as it faces stiff competition from incumbent telcos and eBay subsidiary Skype.

Vonage was founded in 2001 and is active in the US, Canada and the UK. It has never shown a profit and is spending heavily on marketing to acquire new subscribers.

The poor performance of Vonage's Initial Public Offering does not reflect on the overall VoIP market, but rather on the firm's business model, according to Andy Abramson, a marketing executive who writes a VoIP blog.

"It is clear that Vonage's 'spend to acquire' strategy is nothing but a sewer drain for the investors' dollars," he claimed on his VoIP Watch blog. 

"This [stock] reaction is a show of no confidence by Wall Street in the company, its leadership and its approach to business. Nothing more, nothing less."