Vonage Hangs Up On Profits

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The newly-public company’s net loss grew to $74.1 million for the second quarter, compared to $63.6 million from a year earlier.

Vonage Holdings (VG) spends heavily on advertising, particularly online. It would probably be easier to compile a list of Internet users who have not seen a Vonage ad online than a list of those who have.

Its losses moved deeper according to the company as it reported its second quarter numbers. Vonage missed analyst estimates as customers continued to dump the service in droves.

Bloomberg reported on how the VoIP market has grown heavily competitive. Cable and traditional telecoms have entered the market with deep pockets and existing customer bases that Vonage can’t match.

Writer Om Malik follows the VoIP industry, and noted Vonage’s ad spending in his blog:

More troubling – churn is up to 2.3% versus 2.1% in the first quarter of 2006.

In 2005, Vonage spent nearly $414 million in advertising to gain market traction, according to AdAge. Makes you wonder how much it will have to spend more in 2006 to keep the momentum going. It will have to – it needs to find new subscribers to handle that churn situation properly and show growth across the board.

Telecom blogger Mark Evans also looked at the numbers, and forecast a grim picture for Vonage:

Assuming competition remains as intense and Vonage has to spend as much or more on marketing each quarter, the company’s $597.7-million of cash will evaporate over the next eight quarters. Then what? Well, Vonage CEO Mike Snyder believes the company will generate “adjusted operating profits as early as the first quarter of 2008″ (I wonder what adjusted operating profits are?)

Vonage did increase its revenue during the quarter, to $143 million. The company attributed that to success Vonage has had in enticing customers to premium calling plans and the introduction of an Emergency 911 Cost Recovery fee.


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David Utter is a staff writer for WebProNews covering technology and business.

Vonage Hangs Up On Profits
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