More Upside for Vonage Holdings Corp. (NYSE:VG) Shares After Nexmo Acquisition?

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Vonage Holdings Corp. (NYSE:VG) shares were up 12.66% to $5.34 on Tuesday and an additional 0.37% to $5.36 in after-hours trading after an analyst from Citigroup upgraded the stock from “neutral” to “buy.” In addition, the price target was increased from $4.75 per share to $8 per share, representing significant upside for the stock.

According to Michael Rollins of Citigroup, this acquisition would soon pay off and would allow the company to provide an efficient customer service tool for newer and existing companies to someday replace the usual toll-free service. He added that lower sales growth guidance and the amount spent on the acquisition contributed to stock underperformance recently but that this could turn around soon.

Vonage Holdings has been transitioning into a Communications Platform as a Service (CPaaS) company after acquiring Nexmo earlier in the month. Nexmo is already a leader in the cloud industry so this acquisition could accelerate the move for Vonage, which CEO Alan Masarek describes as a Unified Communications as a Service (UCaaS).

Nexmo enhances Vonage’s UCaaS offering by incorporating messaging and web/app-based voice to address businesses’ rapidly increasing mobile, social media and contextual communications needs,” Masarek noted.

This transition could help Vonage Holdings churn out at least $120 million of free cash flow for next year, amounting to a 10.5% yield on revenue. High levels of investment could also come in for the company with this move. Shares of Vonage Holdings Corp are trading in a 52-week range of $3.82 to $7.42. The company has a market cap of $1.16 billion at 213.48 million shares outstanding.

Vonage Holdings Corp is a provider of cloud communications services for businesses and consumers, and consumer and business communication solutions across multiple devices. It provides cloud-based UCaaS solutions, consisting of integrated voice, text, video, data, collaboration and mobile applications. It also serves a range of markets in the small to medium business sectors.

 

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