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Vonage staunches the bleeding
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Vonage cut its losses by more than half in the second quarter of 2007 compared to a year ago. Net loss for the Holmdel, N.J. VoIP provider was $34 million during 2Q compared to $74 million a year ago. Revenues hit a record $206 million, up 43 percent from a year ago.
“I am confident we are taking the appropriate steps to turn our business around,†said Jeffrey Citron, chairman and interim CEO. “I think we’re turning corner on one of the most difficult periods in Vonage’s history.â€
That period involved Vonage losing a patent suit to Verizon in mid-March and briefly being enjoined from signing up new subscribers. The litigation has cost Vonage $16 million so far this year, “which we expect to go down over time,†Citron said during the company’s earnings conference call.
Excluding expenses related to patent litigation, Vonage’s net loss was $18 million, down from $61 million the previous quarter, and the lowest in five years.
BLAMING THE PRESS
Citron said that Vonage implemented workarounds on the disputed patents, but whether or not those are adequate remains to be determined. Vonage may also have to pony up more royalties for Verizon, pending a court decision due by the end of September. “We look forward to the court’s ultimate decision,†Citron said.
Vonage Chief Financial Office John Rigo said the litigation and the “negative†press it generated slowed down subscriber growth and caused some defections.
Vonage added nearly 237,000 subscribers during the quarter, but also lost 76 percent amount for a net addition of nearly 57,000 customers. In the same period a year ago, Vonage added 377,000 subscribers and lost 32 percent of that for a net gain of 256,000.
The company finished 2Q’07 with more than 2.4 million subscribers.
Citron noted that much of the churn--7 percent gross for the most recent quarter and 2.5 percent net on a monthly basis--was mostly driven by “push factors†such as quality of service rather than competition or pricing.
“Those factors are in Vonage’s control,†he said.
SHIFTING GEARS
A shift in the marketing strategy also slowed subscriber growth, Citron said, but it’s expected to save the company $10 million a year. Vonage is switching from an advertising/revenue model to a cost-per-acquistion strategy, which is what most VoIP providers use. Vonage spent $287 per subscriber on marketing in 2Q, up $14 from the previous quarter and $48 from a year ago. The price of Vonage’s residential unlimited calling plan is just shy of $300 before taxes and fees. Citron said he expected marketing costs to fall next quarter. Vonage’s earning release also incuded the following statement:
“The company believes additional opportunity exists to reduce marketing acquisition costs by exiting certain contracts in the second half of 2007 that could not be canceled in the second quarter.â€
Vonage executives did not elaborate on those contracts during the earnings call.
Average monthly 2Q revenue per line was $28.38, up 7 cents from 1Q and 49 cents a year ago. The service cost per sub line was $7.21, down from $8.03 in 1Q as a result of a $2 million refund in Universal Service Fund fees.
“I am confident we are taking the appropriate steps to turn our business around,†said Jeffrey Citron, chairman and interim CEO. “I think we’re turning corner on one of the most difficult periods in Vonage’s history.â€
That period involved Vonage losing a patent suit to Verizon in mid-March and briefly being enjoined from signing up new subscribers. The litigation has cost Vonage $16 million so far this year, “which we expect to go down over time,†Citron said during the company’s earnings conference call.
Excluding expenses related to patent litigation, Vonage’s net loss was $18 million, down from $61 million the previous quarter, and the lowest in five years.
BLAMING THE PRESS
Citron said that Vonage implemented workarounds on the disputed patents, but whether or not those are adequate remains to be determined. Vonage may also have to pony up more royalties for Verizon, pending a court decision due by the end of September. “We look forward to the court’s ultimate decision,†Citron said.
Vonage Chief Financial Office John Rigo said the litigation and the “negative†press it generated slowed down subscriber growth and caused some defections.
Vonage added nearly 237,000 subscribers during the quarter, but also lost 76 percent amount for a net addition of nearly 57,000 customers. In the same period a year ago, Vonage added 377,000 subscribers and lost 32 percent of that for a net gain of 256,000.
The company finished 2Q’07 with more than 2.4 million subscribers.
Citron noted that much of the churn--7 percent gross for the most recent quarter and 2.5 percent net on a monthly basis--was mostly driven by “push factors†such as quality of service rather than competition or pricing.
“Those factors are in Vonage’s control,†he said.
SHIFTING GEARS
A shift in the marketing strategy also slowed subscriber growth, Citron said, but it’s expected to save the company $10 million a year. Vonage is switching from an advertising/revenue model to a cost-per-acquistion strategy, which is what most VoIP providers use. Vonage spent $287 per subscriber on marketing in 2Q, up $14 from the previous quarter and $48 from a year ago. The price of Vonage’s residential unlimited calling plan is just shy of $300 before taxes and fees. Citron said he expected marketing costs to fall next quarter. Vonage’s earning release also incuded the following statement:
“The company believes additional opportunity exists to reduce marketing acquisition costs by exiting certain contracts in the second half of 2007 that could not be canceled in the second quarter.â€
Vonage executives did not elaborate on those contracts during the earnings call.
Average monthly 2Q revenue per line was $28.38, up 7 cents from 1Q and 49 cents a year ago. The service cost per sub line was $7.21, down from $8.03 in 1Q as a result of a $2 million refund in Universal Service Fund fees.
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