'Vonage the Dog' bites back

Literally.

CNBC's Jim Cramer has taken to calling the voice over Internet Protocol (VoIP) provider "Vonage the Dog," and turned ranting about the company's disappointing initial public offering into a regular bit on his call-in show. In fairness, he's not just doing it for giggles; Vonage's share price has steadily declined from its debut price of $17 to around $8.90 on Thursday.

Cramer's entertaining or humiliating--depending on your viewpoint--rants are hardly Vonage's only problem.

The company is mired in investor lawsuits. Investigators are looking into an investor stock short-selling, and a very large competitor is suing the company for infringing on its patents.

But at a press conference here Wednesday, CEO Mike Snyder defended his company's IPO and its prospects.

"The IPO did what it was supposed to do," Snyder said. "The goal was to raise capital, and in that respect, it was hugely successful."

Some analysts actually agree that from a fund-raising perspective the IPO was a success for Vonage. But they say executives could have handled the situation better once the stock started dropping and investors started complaining.

Days after the company went public, some investors, particularly customers who had been included in the IPO allocation, said they weren't going to pay for their shares. Initially, Vonage made statements suggesting the company would reimburse underwriters for any shares that weren't paid. But then a day or so later, it said that it would do everything possible to collect money for shares that had been allocated to all investors, including its customers.

"The deal was obviously overpriced," said Todd Rethemeier, senior research analyst for Sur Terre/Soleil Securities. "And that's not Vonage's fault. But the company is responsible for what happened afterwards with the confusion about whether customers would have to pay for shares. They handled that poorly, and it added to worries on the stock."

The public berating from the media, especially Cramer, likely didn't help Vonage's stock price either. Cramer even brought a puppy on his show last week and hung a sign around its neck that said "Vonage." If that weren't enough, he then hit a button that played a barking dog sound.

Despite these public floggings, Snyder said Cramer doesn't worry him.

"I don't think Jim Cramer has had an effect on our stock," he said. "Nobody here at the company is looking at this as anything other than noise...The stock is down. We'd like it to be up, but the whole market is down. It's out of our control."

But Vonage clearly has a tough road ahead. The company plans to continue investing heavily in its marketing efforts to boost its current number of subscribers, now at 1.6 million. Rethemeier estimates Vonage will actually need 7.5 million subscribers before the company turns profitable.

He thinks Vonage can achieve this target in 2009, if pricing for voice services remains stable. But it's likely that prices will fall, especially as cable operators enter the market. Because cable companies also own the broadband pipe that carries the phone service, they can offer discounts by bundling their voice service with high-speed Internet access. Internet companies, such as Skype or Yahoo, that offer free Internet voice services could also put pressure on pricing.

Management seems to recognize the challenges ahead in the competitive consumer phone market. Earlier this week, Vonage announced a new product targeted at large business customers. The V-Phone replaces desk phones by turning laptops and PCs into phones by simply plugging a small device loaded with Vonage voice software into a USB (universal serial bus) port.

But analysts are skeptical that Vonage can penetrate the enterprise market, which is already dominated by traditional phone companies, as well as newcomers such as Cisco Systems.

"I don't think large businesses are going to replace their phone systems with a doohickey they plug into a laptop," Rethemeier said. "Their voice networks are mission critical. They'll go with more sophisticated voice over IP systems."

The best option for Vonage could be to sell the company, some analysts said. But that might not be as easy as it sounds. After eBay bought Skype for $2.6 billion last year, Vonage reportedly shopped itself around and found no buyers willing to pay the same hefty price.

Would suitors be interested at a lower price? Maybe. And Vonage's sliding stock price is making it cheaper all the time. Internet companies such as Yahoo and AOL are trying to break into the phone business. Vonage's 1.6 million subscribers and voice calling software could supplement efforts the Internet companies already have in the works.

Maybe then Vonage could get out of Cramer's doghouse.