I almost ran headfirst into Howard Stern.
He’s a solid five inches taller than me, and I had my head down in my phone, responding to emails about my next appointment at a tech conference at the Javits Center in New York.
I was walking straight toward him in a rush, and he was standing unaccompanied in front of a booth on the show floor. He held one arm out and took a step to the side. I whisked past and didn’t even look up. Someone nearby started laughing and yelled that I had better watch where I was going. I had made it about 15 paces before I turned around to discover whom I’d almost run into.
Stern was at the show endorsing a newly launched telecommunications company that I thought had a stupid name. The year was 2007, and the company was Ooma*.
This week, Ooma is going public. The long-running voiceover IP (VoIP) service provider will begin trading on the New York Stock Exchange under the symbol OOMA. This initial offering will include 5 million shares in the range of $16 to $18. The IPO is expected to raise $85 million at a microcap scale of $286.1 million.
In the year leading up to my near miss with the radio celebrity, VoIP services had been reviving a lot of media coverage as an attractive and cheap alternative to landline phones. Ooma and its principal competitor MagicJack (NASDAQ: CALL) debuted around the same time, both with the interest of taking down incumbent leader Vonage (NYSE: VG), which had suffered a catastrophic IPO in the space just months before.
Vonage had been in operation since 2001 and launched on the New York Stock Exchange in the spring of 2006. It was the worst IPO of the year up to that point and resulted in class-action lawsuits against the company and $845,000 in regulatory fines against Citi, UBS, and Deutsche Bank.
The problem was that Vonage offered shares to existing customers in advance of the IPO but didn’t process their orders until after the stock debuted and its value tanked.
As a result, some 470 customers ended up paying the IPO price of $17 for shares that were only trading at $13. Vonage has never broken $10 since that time.
In the meantime, Ooma has established itself as a strong competitor in the business of Internet telephony for residential and small business customers.
Residential customers can either buy the Ooma VoIP adaptor and make free phone calls within the United States or spend $10 a month for premier service, which includes caller blocking, a second line, backup phone numbers, conference calling, and integration with Nest smart home equipment.
Small business plans begin at $19.98 per month and include up to 20 lines, virtual receptionists, extensions, conference calling, hold music, integration with mobile devices, and more.
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Ooma’s S-1 with the Securities and Exchange Commission reveals it has approximately 678,000 users and has been growing its base at a compound annual rate of 38%.
The company prides itself on its low churn rate of 0.55%. Churn is the loss of customers to competing services, and in the telephone business, it’s one of the most closely watched statistics. In the cellular service market, there isn’t a single competitor with a churn rate below 1%. Ooma’s low churn means it does a great job maintaining customer loyalty.
The company’s total revenue in fiscal 2015 was $72.2 million, with $19.9 million occurring in the last three months. Subscription and services revenue constitutes up to 75% of the company’s revenue.
It’s worth noting that Ooma’s most basic home package is a one-time fee of $129 with no recurring subscription charges. This could increase the customer base and keep the churn rate down while not having a material impact on the company’s revenue.
Also, the principal competitors in the space are not VoIP-exclusive service providers, but are instead triple-play service providers who offer either landline or digital voice services of their own. This includes Verizon Communications (NYSE: VZ), Comcast (NASDAQ: CMCSA), AT&T (NYSE: T), and Charter Communications Inc. (NASDAQ: CHTR).
While the appeal of VoIP services is somewhat limited in the mobile-dominant consumer realm, Ooma has weathered the initial hype and misunderstanding of VoIP and offers a solid service in a field with some heavy incumbents.
(*Upon revisitation of this memory, it’s entirely possible that Stern was actually endorsing a company called ooVoo, a similarly-named, similarly-designed IP-based communications company that debuted in the same year as Ooma.)
Good Investing,
Tim Conneally
For the last seven years, Tim Conneally has covered the world of mobile and wireless technology, enterprise software, network hardware, and next generation consumer technology. Tim has previously written for long-running software news outlet Betanews and for financial media powerhouse Forbes.
