Why Vonage Holdings Corp. Gained 21.3% in 2016

By Anders Bylund Markets Fool.com

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Image source: Getty Images.

What happened

Shares of Vonage Holdings (NYSE: VG) rose 21.3% in 2016, according to data from S&P Global Market Intelligence.

So what

The year didn't start out on a great note. By the middle of May, share prices had plunged 33% lower year to date due to two lackluster earnings reports and one dilutive acquisition.

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The tune changed in June, when the U.S. Court of Appeals supported the FCC's open-internet rules in a strongly worded ruling. The concept of net neutrality is a key pillar of Vonage's internet-based communications business, so the court's decisive ruling was widely seen as a victory for Vonage and other companies with similar bandwidth-hungry business models.

Now what

The June event launched Vonage into a steady recovery that continued for the rest of the year. By the end of 2016, the $230 million Nexmo acquisition had started to bear fruit giving Vonage a multimedia communications platform beyond its old bread-and-butter voice services. The decision to shut down an unprofitable set of consumer-centric services to focus exclusively on business-grade contracts is already paying dividends.

At this point, Vonage's share price has doubled in two years as the newfound business focus stabilized a rickety financial foundation. The next earnings report is due in a couple of weeksand will give investors another snapshot of the Nexmo-boosted corporate communications locus.

With valuation ratios riding high and Donald Trump working to erase net neutrality, Vonage is both a risky and promising investment today. I'm satisfied with staying on the sidelines for now, but your opinion may vary.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.