Controversial and innovative VoIP provider Vonage issued its first set of quarterly earnings results as a public company this morning, showing continued strong growth in subscribers and a sequential slow-down in its heavy quarterly losses. Vonage predicts it will continue to lower losses on a quarterly basis to the point that it now expects to achieve adjusted operating profits as early as the first quarter of 2008.
Year-over-year revenues jumped by 141% to $143 million in Q2 06 while net losses increased 17% to $74 million. On a sequential basis, however, losses slowed, ticking up by only 1.8% from the $72.8 million loss in Q1 06. But loss from operations was down 11% sequentially, from $82.4 million in Q1 06 to $73.6 million in Q2 06. (Vonage, however, highlighted the decline in the adjusted loss from operations, which doesn’t include depreciation, amortization and non-cash stock compensation expenses. This metric dropped 18% sequentially.)
During the quarter, Vonage added a 255,936 net new customers, a run-rate up 23% year-over-year. By quarter’s end, Vonage served a total of 1.85 million subscribers, more than double the total at the end of Q2 05. Monthly revenue per line grew by 4% to $27.70 while Vonage held the line on costs.
Marketing costs per gross subscriber addition edged up 1% to $239 and the direct cost of providing service to each line dropped by 5% to $7.52 per month. Margins increased, with the direct margin as a percent of total revenue advancing from 55% in Q2 05 to 66% in Q2 06.
Despite all these gains, and the prospect of continued loss reduction, Vonage is still vulnerable due to its stand-alone status. Cable operators are stepping up their own VoIP service launches and pushing the value of triple-play service packages. Moreover, other stand-alone VoIP providers, such as Skype and SunRocket, are promoting new low-cost service plans that promise to slow Vonage’s growth.
However, during the company’s earnings call, CEO Mike Snyder said that Vonage hasn’t yet felt these competitive impacts. He contended, moreover, that cable’s introduction of voice services helps Vonage. “Some of their marketing development benefits us because it accelerates the adoption of VoIP,” Snyder said.
In fact, Vonage doesn’t plan to drop prices to meet the growing competition. Founder, Chairman and Chief Strategist Jeffrey Citron said the game plan calls for adding value and not lowering prices. “Since we’ve stopped changing our price almost seven quarters ago, we’ve seen not only price stability across those six quarters, we’ve managed to increase our ARPU levels,” he said. Now, “it’s our job to start figuring out how to generate value to those customers.”
| Vonage Key Metrics | |||
| 2Q05 | 2Q06 | % Change | |
| Operating Revenues | $ 59,435 | $ 143,378 | 141% |
| Operating Expenses* | $124,388 | $ 217,006 | 74% |
| Loss from operations | $ (64,953) | $ (73,628) | 13% |
| Net loss(2) | $ (63,623) | $ (74,136) | 17% |
| Gross subscriber line additions | 262,310 | 377,005 | 44% |
| Net subscriber line additions | 207,950 | 255,936 | 23% |
| Subscriber lines | 847,849 | 1,853,253 | 119% |
| Average monthly customer churn | 2.10% | 2.30% | 10% |
| Average monthly revenue per line | $ 26.6 | $ 27.70 | 4% |
| Average monthly telephony services revenue per line | $ 25.8 | $ 26.40 | 2% |
| Average monthly direct cost of telephony services per line | $ 7.9 | $ 7.52 | -5% |
| Marketing cost per gross subscriber line addition | $ 236 | $ 239 | 1% |
| Employees | 1,397 | 1,602 | 15% |
| CPE Subsidy | $ 28.00 | $ 24.68 | -12% |
| Direct Margin % Total Revenue | 55% | 62% | 13% |
| Adjusted SGA as % Total Revenue | 56% | 40% | -28% |
| *(excluding depreciation and amortization of $3,133, $1,426,) | |||
Cynthia Brumfield at 9:23 AM|Comments(0)
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