Vonage narrows losses, goes negative on subscribers

Vonage reported a mixed bag of results in its fourth-quarter and full-year 2008 earnings report. The company had its first year of generating positive cash flow from operations, seeing a revenue increase of 9 percent to $900 million for the year. However, the company reported a net decline in subscribers, losing a net of 14,700 customers for the quarter.

Vonage beat Wall Street estimates of losses for the quarter by posting an adjusted loss of $10 million and 7 cents a share; analysts were predicting losses of 8 cents a share. On a GAAP (i.e. what the generally accountants use as a benchmark) basis, the net loss for the company was $65 million and $0.41 per share in 2008.

The company's refinancing in Q4 also makes a guest appearance on the reporting numbers. If one excludes "debt extinguishment costs," the net loss for Vonage narrowed to $10 million in the quarter. If you include the $31 million in debt extinguishment costs, GAAP net loss increased to $41 million/$0.26 per share from $14 million/$0.09 the prior year.

And then there's the net loss in customers, plus some declining ARPU. While churn declined to 2.9 percent per month in Q4 from 3 percent last quarter, the company isn't adding customers to replace them, resulting in a 14,700 net customer loss. ARPU was also down for the quarter, as Vonage made $28.33 per subscriber, compared to $28.75 in Q3.

While marketing costs were down $3 million in the quarter, the "SLAC" - marketing cost per gross subscriber line addition - rose to $309 from $272 in Q3 2008. This is not good math, especially when net subscribers are down. (Take the ARPU number, multiply by 12 months, subtract SLAC, see red ink after a year once operational costs per subscriber are factored in).

For more:
- Vonage reports Q4 and 2008 full year numbers. Release [1].