Vonage Still Shrinking, Stock Soars On Phantom Profit

Vonage (VG), the Internet phone company, still exists. And for the first time we’ve ever seen, it’s technically profitable (thanks to a one-time gain; see below).

That surprise helped send shares up 70%+ in pre-market trading to $0.83. But as cable and wireless steal the show, it’s still going to be very hard to get more people using Vonage, which seems to be stuck in a defensive crouch below 3 million subscribers.

Vonage earned $5 million on $224 million of sales during Q1, a better performance than a year ago, when it lost $9 million on $224 million of Q1 sales. But last quarter’s profit “includes a $13 million mark-to-market adjustment relating to the derivative liability in the Company’s convertible debt,” the company advises. Without that adjustment, Vonage would have lost $8 million (net) during the quarter. (On the other hand, income from operations was $5 million, up from a $4 million loss a year ago, as cost cuts kicked in.)

The sad part is how quickly Internet phone bundles from cable companies and wireless-only cord cutters have made Vonage irrelevant.

In this horrendous economic collapse — when super-cheap services like Vonage might even have an advantage over more expensive rivals — Vonage lost a net 6,000 subscribers during Q1. Gross sign-ups — before churn is factored in — dipped 20% year-over-year to 227,000. With 2.58 million subs at the end of March, Vonage is smaller than it was a year ago, when it had 2.61 million subs.

And we don’t see anything on the horizon that will rejuvenate Vonage’s growth.

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