Vonage, Despite Rollouts, Still Bleeding Money, Users

Vonage Holdings Corp. (VG) stocks dived more than 18 percent in Wednesday morning trading after the VoIP company posted a giant third-quarter loss.

Vonage is fighting an uphill battle against cable operators and telecom providers that sell digital phone service in Internet and pay-TV bundles. It also faces stiff competition from wireless carriers that keep rolling out affordably priced unlimited calling plans. Vonage has remained a one-trick pony since its inception and its challenge is to escape that limitation before it is clubbed to death by rivals’ better business models or bought out, then obliterated – not for its technology, but for its customers.

The company’s shares had plummeted 20.22 percent to $1.42 by 11:02 a.m. Eastern.

Vonage took a big accounting hit for its convertible debt in the third quarter, pushing its net losses to $54.6 million, compared to losses of $7.8 million during the same quarter a year earlier. The charge related to the recent increase in Vonage’s stock price, which has more than quadrupled since August, which is tied to a conversion clause of some of its convertible notes.

But the accounting snafu couldn’t take all the blame because Vonage continues to lose subscribers. Even though the company tried to play up the higher number of its international calling users (400,000), it was hard to hide the defection of 50,191 customers. Sales dropped 2 percent to $221.5 million even as average revenue per line rose 4 percent to $29.89

Those user losses pushed Vonage’s churn rate to 3.4 percent, up from 3.2 percent in 2009’s second quarter. Still, the latest subscriber results are better than the 88,643 lost in the three-month period ended June 30, and Vonage attributed the fewer cancellations to the introduction of its international calling plan, Vonage World. The tier offers aggressive overseas rates favored by ethnic groups with family and friends in other countries.

Vonage also said its app for the Apple iPhone and the Research in Motion BlackBerry devices is attracting positive attention. The program lets users make international VoIP calls from their handsets.


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