By ReutersInformationWeek
Shares of Vonage initially rose, but ended down 2.7%
as investors looked beyond the slight quarterly improvement and
focused on concerns about the company's outlook and debt
refinancing prospects.
Chairman Jeffrey Citron said in an interview he expects a
nonbinding letter of intent for a $215 million debt financing
that Vonage obtained in April to turn into a formal commitment
in the second quarter.
The debt is crucial for Vonage to refinance $253 million in
convertible debt redeemable in mid-December. But Stanford Group
analyst Clayton Moran said debt terms may not be good, given
the troubles in the credit market.
"Given the soft operating results and the strained credit
environment, we're afraid the terms will be onerous," Moran
said. "It's possible that they won't work out terms with the
current financier and turning to another alternative with less
time probably won't be much better."
Vonage's net loss shrank to $9 million, or 6 cents a share,
from $72 million, or 47 cents a share, in the same quarter a
year earlier. Revenue rose 15% to $225 million, in line
with Wall Street expectations.
But it added only 30,000 net subscriber lines in the
quarter, a sharp decline from 56,000 additions in the previous
quarter and 166,000 in the year-ago period.
"The growth has slowed pretty meaningfully," said Moran.
Citron told Reuters the slowdown was expected. "We spent
less money, and obviously that's going to translate into slower
growth. That was a conscious decision by the company."
MARKETING COSTS
Vonage was a pioneer in selling Web-based phone services to
consumers looking for a cheaper alternative to regular phone
service.
Its shares have tumbled around 90% since their
market debut at $17 in May 2006 on worries of competition from
cable companies and other Internet-based phone companies. It
has also been hit by a series of patent lawsuits, and analysts
are concerned about heavy advertising expenses.
First-quarter marketing costs fell to $61 million, or 27
% of revenue, from $91 million, or 46% of
revenues, a year ago.
Monthly customer churn, or cancellations, rose to 3.3
% from 3.0% in the previous quarter due to
customer service problems, specifically long waits on the phone
for representatives.
Citron said the problems were addressed, and churn would
likely improve in the second quarter.
He also said the company plans to boost spending on
marketing in the latter half of the year to around 30%
to 32% of revenue, and customer growth was likely to
pick up as a result.
Citron acknowledged concerns about a slower U.S. economy as
well as rising fuel costs, but said "those concerns have not
affected us in material ways."
Addressing Wall Street's worries about the debt financing,
Citron said the company would seek an alternate source if the
letter of intent fell through.
"It's likely it will get done this quarter. There's a
potential it could bleed out a little bit into the next, but
we're really focused on completing it this quarter," he said.
"We feel confident that it's a good transaction and feel
confident that the transaction will be completed as
contemplated," he said.
The stock fell 5 cents to end at $1.83 on the New York
Stock Exchange.
(Editing by Derek Caney/Jeffrey Benkoe)
By: Ritsuko Ando
Copyright 2008 Reuters. See original article on InformationWeek
0 comments:
Post a Comment