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Analyst: Vonage may go bankrupt

Attendees of the International Consumer Electronics Show in January sample Vonage's service. A judge has ruled that Vonage's technology infringes on Verizon Communications patents. (Damian Dovarganes/Associated Press)

NEW YORK -- Vonage Holdings Corp., the worst-performing US initial public offering in the past year, may go bankrupt by 2009 and investors should sell shares of the Internet-phone company, said Citigroup Inc., a manager of the IPO.

Citigroup analyst Michael Rollins reduced his rating from "hold" in a note to investors Monday and said ongoing patent litigation increases risk to the company's profitability. He also slashed his stock price target to $2.50 from $7.

The move follows a similar downgrade by IPO comanager Bear Stearns Cos., which warned investors Monday not to be tempted by a recent drop in the stock price. A judge blocked Vonage from using technology that allows Internet calls to reach traditional phone lines last week after a separate court decision found the company infringed patents held by Verizon Communications Inc.

"Failing to successfully address the patent-infringement suits could force this company into a financial restructuring or bankruptcy in the 2008 or 2009 time frame," Rollins said.

Shares fell 12 cents, or 3.6 percent, to $3.26, and have fallen 81 percent since their debut.

A Vonage spokeswoman didn't have an immediate comment.

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