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Vonage Sees Loss Deepen 17 Percent

Posted on: Tuesday, 1 August 2006, 06:00 CDT

By BRIAN BERGSTEIN

In its first earnings report as a public company, Internet phone provider Vonage Holdings Corp. said Tuesday its losses increased 17 percent in the second quarter as customer-acquisition costs stayed high.

The results illustrated the multiple challenges facing Vonage, which raised $531 million with a May 24 initial public offering that was disastrous for investors. The stock debuted at $17 per share and dropped almost immediately, recently lingering below $7.

Vonage's loss from April through June was $74.1 million, or $1.16 per share, compared with a loss of $63.6 million in the same quarter last year.

The consensus forecast of analysts surveyed by Thomson Financial was for a loss of 56 cents per share this time, but the predictions fell in a very wide range, from a loss of 38 cents to a loss of $1.18.

Revenue was $143.4 million, short of Wall Street's forecast of $148.3 million. Vonage's revenue was $59.4 million in the same quarter a year ago.

A pioneer in selling inexpensive phone service using Voice over Internet Protocol (VoIP) technology, Holmdel, N.J.-based Vonage has attracted 1.9 million subscribers who use their broadband connections to make calls with regular phones.

But the company has spent heavily on marketing and is under competitive assault from cable TV companies that are using VoIP to offer attractive phone plans. Meanwhile, computer-based services such as eBay Inc.'s Skype program offer free voice chats.

As a result, Vonage's pains are expected to continue for some time. Wall Street envisions losses of $2.11 per share this year, $1.47 in 2007 and 94 cents in 2008.

Vonage's marketing costs were $90 million in the second quarter, 46 percent higher than a year ago. The cost of acquiring a new subscriber was $239, up from $236 last year.

However, Vonage's CEO, Mike Snyder, said the company sees the quarter "as a key inflection point on our path to profitability." He said in Tuesday's earnings release that the company expects to begin generating "adjusted operating profits" - a less restrictive measure than net profit - "as early as the first quarter 2008."

Vonage's 1.9 million subscribers at the end of the quarter marked a 16 percent increase from the previous quarter and more than doubled from 848,000 a year ago.

One important measure of how Vonage capitalizes on that base, monthly revenue per line, rose to $27.70 from $26.63 a year ago. Vonage said the increase came partly from attracting new customers to premium calling plans, but also from a new fee to recover the costs of providing 911 service. VoIP services like Vonage are not automatically linked to 911 as traditional landline phones are.

In the first half of 2006, Vonage showed a loss of $159.3 million on revenue of $262.3 million. In the same period in 2005, the loss was $123.6 million, with revenue of $100.1 million.

Source: Associated Press/AP Online

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