Oh yeah, Vonage – forgot about them

Vonage recently expanded its $24.99 plan (approx. $33/mo. with fees) to include unlimited calling to landlines in 60 countries, including India and Mexico (subject to normal residential use restrictions).

The news of this reminded me that Vonage was still in business. I’ pretty sure I bet that they would be out of cash by now – so it looks like I lost that bet.  It wouldn’t be the first time (and it won’t be last, I’m sure).

So how are they doing? In February of this year, the NYSE gave Vonage a “Notice of Delisting”. Prior to this “Vonage World” announcement the stock was hovering around $0.40 per share. After the announcement, the stock hit a new 52-week high at $2.63. Since then, it has fallen back a little, but it’s still trading today at $1.35.  I guess investors like this new plan.

However, to me, the metrics don’t look all that great, so I don’t know what this rally is based on. In their recent 10-Q filing, Vonage reported customer acquisition costs of $363.01 per new subscriber for the second quarter of 2009, while it was $282.89 for the same quarter a year ago. Vonage lost 88,643 customers in the quarter, compared to adding 2,080 customers a year ago in the same quarter. On the plus side, ARPU and churn are holding steady.

Vonage still has an ugly balance sheet with only $56 million in cash and $203 million in debt.

The 10-Q reads:

We are facing increasing competition from other companies that offer multiple services such as cable television, video services, voice and broadband Internet service. These competitors are offering VoIP or other voice services as part of a bundle.

And goes on to say:

In addition, we believe several of these competitors are working to develop new integrated offerings that we cannot provide and that could make their services more attractive to customers. For example, as wireless providers offer more minutes at lower prices and companion landline alternative services, their services have become more attractive to households as a replacement for wireline service.

The new “Vonage World” plan is clearly an attempt to lower customer acquisition costs and reduce churn. However, it will increase costs and lower gross margin too. It’s competitive offer and I bet they will sign up a lot of customers (lot of India ex-pats, for example) – but with the lower margins will it work? The trends still don’t look good to me, but VoIP appears somewhat hot again, so maybe they will last long enough to (finally) be acquired.

UPDATE: country-by-country calling area comparison between Vonage World and Skype Unlimitied World plans.

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