Pali Capital analyst Richard Greenfield is getting concerned about the Vonage numbers, and is bringing about some of the issues we had talked about previously. He points out that while cable companies report customer stats, Vonage on the other hand reports subscriber line stats.
However, the churn statistic that Vonage reports is based on customers (not lines) making it even more difficult to model their business based on reported figures.
He points out the company is pushing hard to get more second lines because the cost of acquisition of those second lines is lower than signing up a new customer.
When a new customer signs up for Vonage they are normally billed a $29.99 activation fee and if they cancel within the first twelve months they are billed a $39.99 cancellation fee. However, the current second line promotion waives the activation fee, gives a customer two free months of phone service, and the cancellation fee is waived. Essentially, Vonage is giving away a second line to all existing customers for two months with no strings attached (“no risk”).
Vonage’s marketing push is highly visible on company’s website and direct mailings. I have received two in a month. Greenfield says investors should watch out for these non-paying second lines, when the company reports it 2Q 2006 numbers.
9 thoughts on “Vonage Numbers Don’t Add Up”
one thing that concerns me terribly about vonage as well (btw, nice point on second line deferred revenue prospects) is that they are not disclosing ‘low usage’ income clearly. specifically, when new users sign up for the 25 a month plan, if they use the service less than expected they will default to lower billing (circa 15 a month for example if they only use a few hundred minutes) – this is great for customers who see an invoice come through for 17 including tax when expecting 27, but vonage is NOT disclosing clearly what percentage of users are signing up for unlimited calling plans (27ish with tax included) and in fact wind up as customers invoiced at 17…i suspect that some ‘substantial’ percentage of their customer base, speculatively based on the early adopter profiles, are in fact heavy mobile phone users looking to throw a land line back in the house and in turn wind up in the low use category…personally, i’d like to see some formal analyst discussion of this particular item…
every company ”spins” its good numbers…Vonage at 1.8 Million subscribers is just growing…Cable will Win but Vonage will wreck havoc amongst the RBOC’s…carnage by Vonage does NOT mean its a good investment, just means consumers are SICK and TIRED of paying Verizon and ATT $46 per month for a phone line! Cable Wins, Game Over! VOIP Triple Cable Play is going to take the lions share of consumers by 2010! Level3 is the overall winner carrying MOST of the CABLE VOIP!
skibare, I wouldn’t call game over just quite yet, because hopefully 2010 won’t be the end of the world. Fiber to the home will take a wack at cable, and it will be interesting to watch that battle. I agree that it will be difficult for anyone to offer voice service at a profit unless they include it in a bundle, and then probably as a loss leader.
In fact, the Vonage numbers appear to add up in the sense that churn and subscribers are being reported on the same basis. Given the reported information (subscribers, gross additions and net additions) it is possible to estimate churn and compare the results with those reported. (This is an estimate because churn is calculated based on average subs, which is usually done monthly and therefore will not exactly match the average of beginning and ending subscribers.) Based on this calculation, Q1 churn would be 2.2% versus 2.1% reported. The gap has been shrinking over time, whcih is expected given the growing subscriber base.
As a result, they do not appear to be doing anything funny with lines versus customers in terms of reporting.
However, if the number they are reporting includes second lines as separate “subscribers”, then they are being misleading to inflate their subscriber numbers. (That cannot be determined from the public reporting.) If that has been accompanied by marketing intended to drive adoption of second lines, this will become apparent over the next few quarters as churn increases when those second lines are cancelled.
Ah, they must be using the old AOL accounting numbers game…
I signed up to Vonage last week ,I didnt have to pay the activation fee and was only charged the shipping fee of $14.95 .
I was told that this offer is avaible only if you call .
I dont need a second line .
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