What part of "Vonage" don't you understand?

Tim Mullaney

Looking at Vonage today, trading at less than $7 a share, made me think about Alien Technology. Alien, you'll recall, is the maker of Radio Frequency ID tags and related gear that wants to go public despite big losses. Justin Hibbard and I did a tongue in cheek blog-duel about Alien a while back: It's losing a ton of money and sure looks to me like a truly weak deal. RFID is simply a trickier, longer-term proposition than maybe we thought back in 2003, when I first wrote about it, and hasn't grown as fast and as soon as I expected.

Anyway, here's my observation and my question. Much to my surprise, underwriters led by Bear Stearns have nudged this thing closer to a deal, setting a price range of $10 to $12 a share and a valuation target of $563 million, according to IPOHome.com. this for a company that lost $63 million in the last 12 months, on sales of $20 million.

I must be missing something. This is a market that spits up and chews out money-losing companies that can't demonstrate clearly that they are at a tipping point into profitability and fast growth. Look at Vonage, whose $261 million loss for 2005 at least involved $269 million in sales, demonstrating someone at least wants to buy their product. But still, the stock tanked from the get-go.

At Alien, $20 million in sales for a 12-year old company is not exactly compelling as a growth case, and a dip in sales for the first half of the current fiscal year and negative gross margins are both red flags. Big ones, it says here.

Either they've had a heck of a roadshow, the price is going to be cut before this happens, or their first few trading days are going to be what my college buds and I used to call quality entertainment.

Before it's here, it's on the Bloomberg Terminal.