Vonage Could Go Bankrupt, Analyst Warns

Vonage's lackluster IPO and ongoing patent troubles are leading some financial analysts to speculate about the company's long-term viability.

Citigroup Analyst Michael Rollins said earlier this week that Vonage may go bankrupt by 2009 and urged investors to sell shares, according to a story in The Boston Globe . Citigroup is one of the managers of Vonage's IPO.

Rollins said the company's ongoing patent litigation is one obstacle to Vonage's financial success. He also reduced his stock price target for the VOIP service provider from US$7 to $2.50.

Bear Stearns, which also managed the IPO, reportedly downgraded its assessment of Vonage after a judge blocked the service provider from using technology that's key to its service. The technology, according to the judge, infringes on a patent held by Verizon.

The injunction came last Friday and followed a judgment in early March whereby a court decided Vonage owes $58 million in damages plus 5.5% royalty rates for future use of Verizon's technology.

Vonage is scheduled to head back to court in early April so the judge in the case can decide if the injunction will remain in effect or if Vonage will be allowed to use the technology while it litigates. Verizon brought a case against Vonage to court in June 2006.

Meanwhile, a patent infringement case filed by Sprint more than a year ago is expected to go to trial in September