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Vonage, Yes, Vonage, Ekes Out a Real Profit

Vonage Holdings Corp.’s (VG) push to lower costs while marketing its international calling plans seems to be working.

For the first time in its nine-year history, the VoIP service provider reported a net income from operations. In May 2009, the company managed to profit on a fluke, one-time gain, but this quarter’s results come from actual customer additions and reduced expenses.

To that point, Vonage on Thursday said it earned $4.4 million in the fourth quarter of 2009, compared to a $40.9 million loss in the year-ago period. Sales were up as well – hitting $218.4 million, up from $214 million – thanks mostly to the Vonage World product. Vonage World allows for unlimited calling to landline phones; there’s also a mobile feature to the plan.

Thanks to Vonage World, average revenue per user jumped to $30.54 from $28.33. At the same time, Vonage slashed its general and administrative outlays by $6 million. The company’s marketing costs, which historically have been very high relative to results, fell as well, to $53 million from $62 million. That translated into less money spent to add customers – for years, Vonage paid about $400 per new user and now it’s down to $281. In the fourth quarter of 2008, the price tag totaled $309.

The results for Vonage’s full year weren’t as good as the final three months, however. The New Jersey-based company remained in the red, although by $20 million less than the end of 2008. By Dec. 31, 2009, Vonage showed a net loss of $42.6 million. If it hadn’t been for for $46 million in charges for convertible debt, Vonage would have netted $3 million – a first for the company.

Marc Lefar, CEO of Vonage, said he was pleased with the numbers.

“This has been a breakthrough financial year,” he said in a prepared statement. “Although we faced considerable challenges due to the economy, competition and wireless substitution, we are stronger and more vibrant than ever.”

Also on Thursday, Vonage said it has hired Barry Rowan, who was CFO at Nextel Partners Inc., as its new financial chief. John Rego is vacating the post. Rowan will also hold the executive vice president, chief administrative officer and treasurer titles.

“Barry brings deep wireless industry experience and important leadership skills that will drive the planning and execution of our financial strategies,” Lefar said.

Despite the good earnings news, Vonage shares closed down 4.07 percent on Thursday, at $1.65.


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