November 8th, 2007
Vonage's 3Q numbers are in: four reasons why their future looks dim
First, let’s do the numbers.
Vonage’s latest quarterly numbers were reported today. Vonage said its net loss for the third quarter jumped to $161.8 million, or $1.04 a share. That’s quite worse than the loss of $62.2 million, or 40 cents a share, it generated a year ago.
Revenue actually gained 30 percent, from $162 million to $211 million. A net gain of 78,000 customers had a good bit to do with that.
Now comes time for four “yea, but’s;:
Churn-the percent of Vonage customers leaving last quarter, was up from 2.5% in the prior quarter to 3% last quarter. Insofar as customer satisfaction (or lack thereof), churn isn’t a “canary in the coal mine.” It’s a big squawkin’ macaw. Three percent churn is all the worse given that given the denseness of their account cancellation procedures, Vonage makes it very difficult to say goodbye.
Although Vonage reports a preliminary five-year, $39 million deal to settle the patent dispute with AT&T, I don’t see much relief there. Why? Well, with Vonage having settled, or about to settle patent infringement suits with SprintNextel, Verizon AND AT&T, don’t you think the patent trolls have identified Vonage as an easy mark? One thing you can say about patent trolls-when they smell blood in the water, they are going to strike. And although Vonage appears to have settled with most of their major rivals, the potential for shell companies and their lawyers to inflict Vonage with death by a thousand cuts should not be minimized.
Vonage is increasingly cash poor. Cash on hand is now just $194 million, compared to $356 million just three months ago. Vonage partisans will hope that the big patent infringement settlement bites will trail off and the beleaguered company will be able to bulk up its cash reserves once more. But that is far from assured. Why? Here’s my fourth reason for pessimism about Vonage:
Vonage gained only 78,000 net subs in this last quarter. That’s rather low, and tells me that Vonage may be exhausting their potential early-adopter/VoIP-is-cheaper potential new accounts in favor of triple-play VoIP from established broadband triple-play and low-cost PC-based competitors.
Russell Shaw is an enterprise computing journalist, analyst and author based in Portland, Oregon. See his full profile and disclosure of his industry affiliations.
