So, Vonage is down, so what?

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Vonage IPOed this morning at 17 and then promptly started dropping, closing off 12.6%.

The predictable result was a bunch of handwringing about a disappointing IPO. Here's the Yahoo article:

The stock opened close to its IPO price, then quickly dipped, which panicked some investors, DeStefano said.

...

In an unusual move, the Holmdel, N.J., company had set aside up to 13.5 percent of the IPO shares for its customers, and promoted the offering to them via voice mail.

Anthony Sgroi of Bergen County, N.J., has had Vonage service for a year and half, and asked for 1,000 IPO shares. He received 300. Other Vonage customers on an online forum reported similar allocations, indicating strong interest from the group.

It wasn't the company's long-term prospects that attracted Sgroi to the deal, however.

"I'm not a big stock market guy ... when I got the option to buy the IPO, I figured it was a chance to make some quick cash," Sgroi said. "I was planning to sell within a week or so anyway."

He sold the stock Wednesday morning at a loss. Now, he plans to cancel his Vonage account and switch to the local cable company's competing service, which he said would save him $10 a month.

And Business Week:

What were they thinking? That's the question on the minds of skeptics watching the stock performance of Vonage on its first day as a publicly traded company. The closely watched and hotly debated initial public offering did get done Tuesday night at $17 a share -- valuing the Holmdel (N.J.) -based provider of voice phone calls over the Internet at almost $3 billion -- despite large and growing losses and deep concerns about rising competition.

When trading opened on the morning of May 24, there was no sign of the blind optimism that prevailed during last decade's tech bubble. Vonage VG shares sank like a stone in early trading, moving as low as $14.50. "I haven't spoken to any institutional investors who have a strong [positive] conviction about Vonage over the long term," says Soleil Securities analyst Todd Rethemeier.

What were who thinking? In case you've forgotten, from the perspective of the company the purpose of an IPO is to raise money for the company, money which apparently Vonage is going to spend on advertising. If your stock has a big price blip after the opening, that means that you've left money on the table. Conversely, if the stock goes down, you should be thanking your underwriters for getting you a good deal. As for the investors who thought they could flip the stock after the IPO, it serves them right. Even during the boom, that wasn't a sure way to make money.

Even from the perspective of making money for the investors, it's not clear what the problem is. They're down 12%, not 75%, so the value of the company is still pretty substantial (nearly 3 billion). If you were happy at 17, you should still be pretty happy at 14.5. And of course most of the original investors can't or won't sell right away, so it's the long term valuation that counts, and one imagines that the 400 million or so they raised would be an important contribution to one's long-term prospects.

That said, there is one sense in which this is disappointing: to the extent to which you think the market is efficient, you might have hoped that the market would like the company better. I.e., it's bad news about the prospects of the company. But you already had most of that information when you were out placing the original IPO, so it's not like today's drop tells you that much more.

Of course, none of this is should be taken as offering an opinion on Vonage's prospects. All I'm saying is that one shouldn't make too much of the drop in the first day of trading.