Independent VoIP provider Vonage released its Q4 06 earnings results today and although the financial results looked OK, the subscriber data portend a bad end for Vonage.
Vonage’s earnings call was such an uncomfortable thing to hear. While the assembled executives talked about kiosks in malls and repositioning the product for the mass market and Vonage’s recent deal to bundle EarthLink’s broadband service in a package, I couldn’t stop staring at what looks like a terminal sentence for the VoIP company.
Every single subscriber metric held bad news for Vonage. It’s like watching, if not a plane whose jet engines had just stalled, then a train careering downhill fast.
For example, although Vonage’s total subscriber line count keeps growing, it does so at increasingly decreased rates. Looking at the chart below, you can see that Vonage’s total subscriber base grew by a sequential 8% in Q4 06 (from 2.057 million at the end of Q3 06 to 2.22 million at the end of Q4 06). But, that’s a huge drop from the sequential growth rate during the year-ago quarter. From Q3 05 to Q405, Vonage’s total subscriber lines grew by 20%, from 1.06 million to 1.27 million.
Measured another way, Vonage’s net subscriber line additions keep dropping, and they keep dropping at an accelerating rate. Look at the table below. In Q4 06, Vonage added 166,267 net subscriber lines, a run-rate down 20% from the 207,252 net subscriber lines added in Q4 05. Compare this to the quarter-over-quarter net subscriber line adds for Q3 06 — Vonage added 204,591 net subscriber lines, down only 4% from the 213,957 net adds in Q3 05.
Or, even more damning, Vonage has reached the point where it’s only retaining about half the new subscribers it gains. Look at yet another table (I told you I was transfixed by the subscriber data), below. Back in the first quarter of 2005, Vonage’s net subscriber line additions were equal to about 89% of the gross subscriber line additions. But, during Q4 05, net subscriber line additions were equal to only 53% of the gross additions.
One way to think about this: for every 100 new subscribers who sign who for Vonage in any given quarter, about 47 existing or new customers cancel the service. Making this situation far worse is that Vonage is forced to spend more and more money for each new sign-up — during Q4 06, Vonage spent $306.26 in marketing costs for each gross subscriber line addition; that’s up 25% over the $244 marketing cost per gross subscriber line addition for Q4 05.
Vonage is banking on its new long-term contract and EarthLink programs to boost growth ahead (the company predicts it will add 675,889 to 875,889 net new customers during 2007). But, the fact remains that cable companies, with their attractive triple-play bundles, and telcos, with their attractive mobile-landline voice bundles, are far too potent for Vonage to fight.
The sudden slow-down in Vonage’s growth rate over the past two quarters is evidence that cable operators and incumbent telcos are already hastening the ultimate trainwreck that lies ahead for Vonage.
Cynthia Brumfield at 11:11 PM|Comments(0)
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