Vonage Now Losing Customers


Vonage (VG) continues to struggle in the Internet phone business as the cable industry thrives. Vonage missed the Street’s fourth quarter revenue expectations and actually lost subscribers, it said today.

Growth continues to be a big challenge: Vonage lost 15,000 net subscribers during Q4 despite signing up 201,000 gross subscribers. The year before, Vonage grew by 56,000 net subscribers during Q4.

During full-year 2008, Vonage grew by just 27,000 subscribers, down from 365,000 in 2007. To grow by 27,000 subscribers in 2008, Vonage had to sign up 952,000 gross subscribers.

As a result, Vonage’s Q4 revenues grew 3% to $222 million, below the Street’s $227 million expectations.

Some of Vonage’s numbers are getting better. For the first time in its history, Vonage reported positive operating income in Q4, generating $3 million in operating income. That’s better than operating losses of $9 million in the year-ago quarter and $3 million during Q3’08. Vonage’s net loss “excluding debt extinguishment costs narrowed to $10 million in the fourth quarter 2008 from $12 million excluding certain charges the prior year.”

“While our financial performance was sound, we fell short in our ability to substantially grow our subscriber base. However, we are confident Vonage has significant opportunities to create future value for shareholders,” Vonage’s CEO Marc Lefar said in a statement. “Not only is the business model solid, but the market opportunity for digital voice remains robust.”

We’re interested in hearing more about Lefar’s long-term strategy. It’s going to be very hard to significantly grow Vonage’s customer base with its current business model — given the shift to wireless and rapid growth of service bundles (including phone service) from cable and telco giants.