The company met or exceed analysts’ expectations at the top and bottom line, but admitted it continued to struggled to keep its customer acquisition costs in check and churn down.
It also reported an outlook for the current quarter that was behind expectations, causing its share price to tumble by over 9% during the day’s trading. It ended Thursday at $5.30, down from its $17 June 2006 IPO price.
Vonage lost $65m in the quarter, compared to $72m in the year-ago quarter. Revenue was up 91% at $181m, a little better than expected. Loss per share was $0.42, in line with Wall Street estimates.
But executives admitted on a conference call that the cost of acquiring new subscribers was higher than they would have liked, and they vowed to bring marketing under control this year.
Chief executive Mike Snyder attributed the spiraling marketing costs to a switch to an advertising strategy considered more likely to result in customer sign-ups.
The increase reflected the impact of the transition to a new marketing approach and doesn’t reflect any systemic issue, Snyder told analysts.
Just attention-getting doesn’t tell the whole story to mainstream America, you’ve got to got to be more descriptive, more educational, he said.
Marketing cost per gross customer addition was $306 in the quarter, up from $244 a year earlier, he said. Snyder said this was certainly beyond what we expected and not an acceptable level.
Average monthly revenue per subscriber was $28.25, an increase of $1.03 from a year earlier. The company netted 166,267 new customers in the quarter, compared to 205,000 in the third quarter. Churn was 2.3%, better than the 2.6% a year earlier.
Vonage expects that its customers, on average, will stick around for five years. That’s a calculation based on numbers gleaned in the four years that the company has been around.
The company expects full-year 2007 revenue to be $850m to $900m. The top end is about $25m shy of what analysts polled by Reuters Estimates had hoped for. Vonage expects to be profitable by the first quarter of 2008.
