Why Vonage Holdings Shares Popped

Why Vonage Holdings Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Vonage Holdings jumped by as much as 22% during intra-day trading Thursday after the company announced it has entered into an agreement to acquire privately held Vocalocity for $130 million.

So what: The mildly dilutive deal will be comprised of $105 million in cash and $25 million in Vonage common stock, and is expected to be accretive to adjusted earnings and on an EBITDA multiple basis sometime in 2015. Vocalocity is growing quickly by maintaining its focus on providing voice over Internet protocol services primarily to businesses with 20 or fewer employees -- which comprise around 60% of the roughly $15 billion small and medium business voice services market -- and most recently boasted 39% year-over-year revenue growth to $28 million during the first half of 2013 alone.

Now what: For reference, Vonage missed sales expectations in Q2 when it reported revenue fell 3.4% to $204.8 million, so investors are understandably excited for this growth catalyst going forward.

Considering Vonage also stated the SMB market is forecast to grow at a compound annual rate of 27.5% over the next five years, the combined growth potential for both Vocalocity and Vonage looks pretty impressive. What's more, as Vonage CEO Marc Lefar pointed out, "Entry into the SMB segment is a key element of the growth strategy [Vonage] outlined last year," which makes its purchase of Vocalocity a shoo-in for Vonage's existing business.

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The article Why Vonage Holdings Shares Popped originally appeared on Fool.com.

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