Vonage: Has the bleeding stopped?

Summary:Vonage reported its second quarter earnings Thursday and there were plenty of negatives. However, there were a few reasons to have a little optimism.

Vonage reported its second quarter earnings Thursday and there were plenty of negatives. However, there were a few reasons to have a little optimism.

The emphasis here is on little. In no way should you run out and buy Vonage shares, unlike some folks that are driving VG up 11 percent right now.

Vonage reported a second quarter net loss of $34 million, or 22 cents a share, on revenue of $206 million. While those results still stink it was an improvement from a year ago.

Revenue was also lighter than Wall Street expectations. A churn rate of 2.5 percent was also disappointing to Wall Street as were the 57,000 customers added in the quarter.

So why be even slightly optimistic?

Vonage didn't totally crumble. It learned to live without its stupid marketing tricks (what a waste of funds). And customers actually stuck around for the most part.

Disclosure: I'm still a Vonage customer even though I have pondered switching. I have stuck with Vonage because I'm:

  • Too lazy to switch;
  • Vonage hasn't forced my hand as the service has been fine for me.

Meanwhile, Vonage says it is nearing a workaround to get around Verizon patents. Verizon is suing Vonage over VOIP patents. In a statement, Vonage Chairman Jeffrey Citron said:

"We have substantially completed the deployment of workarounds for the two name translation patents and have completed the development of the wireless patent workaround. This is a significant step toward moving ahead with our business in the wake of the Verizon litigation. We look forward to the Court's ultimate decision and remain confident in the strength of our appeal."

Bottom line: The best Vonage could do this quarter was hold the fort. It held the fort.

Now you'll hear some Wall Street analysts complain about Vonage's growth--it only added 57,000 lines compared to the 125,000 Citigroup analyst Michael Rollins expected. But my expectations were lower: I was expecting no net additions to subscriber lines. Who in their right mind would be a new Vonage customer? And it's not like Vonage was actively pitching them.

Vonage has cut its marketing spend and allegedly will become more focused on returns. It needs to maintain that discipline.

Rest assured Vonage is still a mess. It just seems like it's less of a mess than it was a quarter ago.

End note: I find it curious that Citron is described as the chairman of Vonage throughout the earnings statement and not the CEO. As previously noted, Citron may not be allowed to be a CEO. But if he walks like a CEO and talks like a CEO he's probably a CEO. Quite a line being walked there.

 

Topics: Verizon, Legal, Patents

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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