IP Democracy: Vonage Growth Slows As Net Loss Narrows


voip.jpgIndependent VoIP provider Vonage issued its Q3 06 earnings report today showing slowing growth and higher churn, along with rising revenue and narrowing losses. Revenues soared by 118% year-over-year and rose 12% sequentially, while net loss dropped 6% year-over-year and 16% sequentially.

As good as that sounds, the dark clouds are clearly on the horizon for the controversial company. While Vonage added 359,148 gross subscriber lines, the net additions amounted to only 204,591, highlighting a high degree of “churn,” which in turn is indicative of poor customer satisfaction or a mismatch between some higher-than-expected portion of new customers and the kind of service Vonage delivers.

Indeed, Vonage’s reported monthly churn for the quarter was 2.6%, 13% higher than the churn for Q2 06 or Q3 05. As a consequence, net customer line additions were down 4% year-over-year and 20% sequentially to 204,591.

During the company’s earnings call, CEO Mike Snyder put the blame for the slow-down on competition, lower back-to-school sales than anticipated and Vonage’s advertising, which needs to be revamped to target mainstream users rather than early adopters. The execs assembled for the call tended to address problems with Vonage’s marketing efforts, promising to implement efforts — such as more widely available retail kiosks and a new professional installation service — that cater to the mass market.

But the elephant in the room — cable’s widespread deployment of VoIP services and ramped-up competition from other independent VoIP providers such as SunRocket — was virtually ignored as the cause for the slow-down. Vonage can tinker all it wants with its marketing message and its efforts to reach a new class of consumers, but as long as cable is offering potent triple-play packages of voice, video and data services, Vonage faces further growth slow-down in Q4 06 and beyond.

Selected Vonage Statistics
  3Q05 2Q06 3Q06
Total Operating Revenue (000)  $   73,871  $ 143,378  $  160,722
Total Operating Expenses (000)  $141,222  $ 217,006  $  226,520
Net loss (000)  $ (65,955)  $  (74,136)  $   (62,184)
Gross subscriber line additions 282,176      377,005      359,148
Net subscriber line additions 213,937      255,936      204,591
Subscriber lines 1,061,786  1,853,253   2,057,844
Average monthly customer churn 2.3% 2.3% 2.6%
Average monthly revenue per line  $       25.8  $        27.7  $         27.4
Average monthly telephony services revenue per line  $       24.8  $      26.40  $       26.33
Average monthly direct cost of telephony services per line  $          8.6  $        7.52  $         6.86
Marketing cost per gross subscriber line addition  $        209  $    239.16  $    254.26


Posted by Cynthia Brumfield on October 31, 2006 11:26 AM to IP Democracy