Vonage: More Bad News
Posted by: Olga Kharif on October 31, 2006
After a while, criticizing Vonage feels like kicking a defenseless dog. Alas, Vonage just reported its third-quarter numbers, and while the Street louded a narrower-than-expected loss, I see plenty to worry about in the results.
The company suffered from higher churn and lower-than-expected subscriber growth. I bet that Vonage’s decision to make its subscribers-IPO investors pay up didn’t help the company make any friends (And, by the way, the stock is 60% off its IPO highs.) Vonage’s execs also admitted faults with the company’s ad campaign.
What I found most worrisome, however, was that the Web-calling company’s customers acquisition costs, already high, have creeped up. In the second quarter, Vonage spent $239 to acquire a new user. In the third quarter, that number shot up by $15. At the same time, the number of months a customer stays with Vonage has declined due to increased competition in the Web-calling market, bringing its total lifetime value per customer down by $10, to $324 as compared to $334 in the second quarter, per UBS estimates.
If these trends continue, I don’t see how Vonage is ever going to make money. I’d say, Vonage needs to take radical steps, now.