Vonage Posts Q3 Loss, Settles With AT&T

Vonage Holdings Corp. (NYSE: VG) announced today that it has tentatively reached a settlement with AT&T Inc. (NYSE: T) that would end its patent dispute with the nation's largest telco. (See Vonage Reports Q3.) If a settlement is reached, it would mean Vonage's legal troubles are officially over, for now. The VOIP provider recently ended its other disputes with Verizon Communications Inc. (NYSE: VZ) and Sprint Corp. (NYSE: S). (See Vonage Settles With Verizon and Vonage Soars on Sprint Settlement.)

Now that the company can focus all of its attention on its business, there is reason to believe that there may be light at the end of the tunnel for the troubled VOIP service provider.

When excluding the legal charges incurred during the third quarter, Vonage reported that its losses have continued to narrow -- this time by about 75 percent. "Things appear to be improving and operations are stabilizing," says Stanford Financial Group analyst Clayton Moran.

Table 1: Vonage's 3Q07 Earnings
3Q07 3Q06 y/y Change
Revenue (Thousands) $210,534 $155,611 +35.30%
Earnings (Thousands) -$161,828 -$62,184 -160.24%
GAAP EPS -$1.04 -$0.40 -160.00%
Access Lines 2,524,000 2,057,844 +22.65%
Source: Vonage

Vonage had been struggling financially even before it became a regular in federal district courtrooms. The company had been growing at a rate of 75 to 100 percent a year at the time of its IPO. But when it couldn't sustain such high growth rates and continued to spend heavily on advertising and marketing, the stock tanked.

But with spending now under control, are better days ahead for Vonage? "The churn rate still needs to be addressed, and we're concerned about their upcoming debt maturity," said Moran. But with a market that has become much less crowded with the demise of Sunrocket and other pure-play VOIP providers, 2008 could be a year that sees Vonage finally turning a profit.

— Raymond McConville, Reporter, Light Reading

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