Needham Likes Vonage After 'Disappointing' 2019

2019 was a "disappointing" year for Vonage Holdings Corp. VG as the stock lost around 10%, but 2020 could prove to be a rebound year as the stock is "set up favorably," according to Needham.

The Analyst

Needham analyst Richard Valera maintains Vonage at Buy, price target lifted from $11 to $14.

The Thesis

Valera said the bullish case for Vonage is partly based on the Nexmo CpaaS business, which performed well in 2019 with a mid-40% year-over-year growth rate. The business should end 2019 with revenue north of $300 million and will enter the new year with "solid momentum." As it stands today, the business is valued at just over two times sales and could re-rate higher to three to five times on a standalone basis based on other public and private comps.

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Meanwhile, Valera said the Applications business will enter 2020 with an ongoing headwind after Vonage's "hard stop" on reselling Cisco-Broadsoft in favor of VBC was implemented in 2019. However, investors should expect better deal targeting and pipeline management to prevent any more "downside surprises."

Adjusted year-over-year Applications growth of 8% seen in Vonage's third quarter was "clearly disappointing" the company highlighted it will offer a Business segment bookings growth metric in the fourth quarter and beyond, the analyst wrote in the note. This metric should be well received by investors as it should demonstrate quarter-over-quarter improvement in the fourth quarter.

Price Action

Shares of Vonage traded lower by 1.7% at $7.35.