From my last post you can see my cynical in assuming that my lack of receiving Vonage pre-IPO stock was a result of their DSP program being one big marketing ploy. I read the NYTimes article this morning and realized I was wrong … and lucky.

Vonage’s shares, which are listed on the New York Stock Exchange, plunged $2.15, or 12.7 percent, to close at $14.85. The stock rose at first, then dropped as low as $14.49. It recovered slightly at the end of the day.

The company sold 31.3 million shares, or 20 percent of its stock, to raise $531.3 million, money it expects to use to attract new customers. It now has a market capitalization of $2.3 billion. Vonage made up to 15 percent of its new shares available to its customers; a person briefed on the offering said demand for those shares was three times the supply.

Had I actually read the Prospectus I would have read what this savvy blogger did:

“As a new investor, you will experience immediate and substantial dilution,” Vonage points out.

The price you will pay in this offering for each share of our common stock will exceed the per share value attributed from our tangible assets less our total liabilities. Therefore, if we distributed our tangible assets to our stockholders following this offering, you would receive less value per share of common stock than you paid in this offering. Assuming an initial public offering price of $17.00 per share (the midpoint of the range set forth on the cover page of this prospectus) the net tangible book value adjusted for the net proceeds of this offering at March 31, 2006 was approximately $433.1 million, or approximately $2.78 per share. Pro forma net tangible book value per share represents the amount of our total consolidated tangible assets less our total consolidated liabilities, divided by the total number of shares of common stock outstanding. Accordingly, if you purchase shares of our common stock in this offering you will suffer immediate dilution of $14.22 per share in pro forma net tangible book value. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our capital stock and the losses we have incurred.

Update: Want to know how things really work? Read Tom Evslin’s post here. And more of his comments here:

Everybody CAN’T be right about an investment strategy. The whole herd can’t win at once because there isn’t anybody around to be a loser. If everybody flips, everybody loses as we’ve just seen. I believe in the wisdom of the crowd (usually) when it comes to wikipedia entries or social bookmarking. Follow it at you own risk when it comes to investing; it will inevitably be wrong.

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