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$1.20 -0.10 (-7.69%)
12/4/2008 3:22 PM

Vonage Holdings Corp. (VG)

CAPS Rating:
*

The Company is a provider of broadband Voice over Internet Protocol services to residential and small and home office customers.

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Avatar NetscribeTelecom (98.56) Submitted: 11/22/06 11:19 AM : Underperform Start Price: $6.63 VG Score: 42.55

“Consistently inconsistent” is what Vonage Holdings is following as for now. As one of the leading Voice over IP (VoIP) service provider, the company offers non-facilities based wireline telephony service across the US, Canada and the UK. The service has grown rapidly since its launch in Oct 2002, and boasts nearly 2 million subscribers across the three countries, with the US representing over 95% of these subscribers.

As the US economy slowdowns, wireless and broadband remains the key growth drivers for the US telecom services industry. Wireless penetration is expected to grow to 88% by 2009, which will translate to 270 million subscribers. On the other hand, the fixed-line segment is facing resistance because of wireless substitution. Going forward, competition is expected to increase as a result of new technologies and services that are developed and introduced in the future.

Vonage with a poor stock performance since it’s IPO in mid-2006 has garnered a lot of attention recently. With marketing spending so high, the firm has been racking up heavy losses. Encashing the flat average monthly telephony services revenue per line, high churn-rate, it is evident that company’s position in the market is not as strong as many had thought it to be, since the close of its IPO.

Going towards, we believe that Vonage will continue to trade as a revenue momentum story. Risk accelerates for the company as the productivity of its marketing strategy, advertising and distribution proved to be less productive than the company hoped. The cost of adding customers has skyrocketed in recent quarters, as growth has slowed down. The Company is contemplating expanding retail distribution further, which could entail opening stores. Such initiatives sound costly and could serve to dissipate limited resources. With highly volatile and unpredictable subscriber base, we anticipate Vonage’s cheap stock will remain so, over the next one year.

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Avatar NetscribeTelecom (98.56) Submitted: 4/23/07 6:33 AM

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Vonage Holdings, a provider of broadband telephone services is a story of company with high growth but still a loss making entity. The company’s revenue for December 2006 totaled $607.4 million; up from $269.2 million proves the growth story. This was largely supported by sales from telephony services due to growth in subscriber lines and higher earnings from customer equipments. But on the contrary, net loss increase by 9% to $286.1 million, caused by staggering selling, general and marketing related expenses to broaden the customer based.

In 2006, Vonage added 955,000 net subscriber lines to increase the total subscriber line to 2.2 million. Its current customer-acquisition strategy includes the start of On-Demand Verification services that will capture the precise name and address information for each prospective customer and follow up with a personalized direct mail piece. Company’s average monthly revenue per line increased to $28.98 from $ 27.03, but the churn rates narrate a different story. Average monthly customer churn was 2.5% which has deteriorated from 2% in the prior period.

While the company’s revenue growth is a massive 90.65%, compared to an ordinary 25.71% of industry, but the operating margins are negative, thus offsetting the total gain. For 2007, company targets subscriber lines of approximately 2.9 to 3.1 million, with total revenue in the range of $850-900 million, however the management does not seem to control the marketing expense instead rather increased the estimates to $400 to $425 for 2007, which will further deteriorate the profitability of the company. Operating loss is expected of about $170 to $150 and management expects positive operating numbers only by the Q1’ 2008.

Apart from this the backdrop worsened when it was found guilty of infringing on patents owned by Verizon Communications and barred from signing up new customers using the disputed technology. If this was all, the company’s CEO decided to resign in such conditions and the founder of the company is currently holding the company temporarily. In all these conditions, the shares of the company have already fallen continuously and any improvement in the near future seems doubtful.

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