Mon, Dec 22, 2014, 11:36 PM EST - U.S. Markets closed

Recent

% | $
Quotes you view appear here for quick access.

Vonage Holdings Corporation Message Board

  • valueseeker890 valueseeker890 Nov 6, 2006 1:36 AM Flag

    Why vonage is doomed

    In the third quarter VG added 359,000 new subscribers vs 377,000 in the second quarter. They gave as the reason for the decline increasing competition. They lost 154,000 subscibers due to cancellations for a net gain of 204,000. Even if they continue to win the same number of customers in future quarters, their growth will slow dramatically even if the churn rate goes down to 2.4% because as their total subscribers increase, churn increases also as an absolute number.
    I did a projection using the above assumptions (359,000 new subscribers per quarter, 2.4% churn) and come up with a total of 3.1 Million subsribers in March 2008, an increase of 51% versus Sept. 2006.
    Projected Income Satement under the assumption of flat CPE (customer equipment) expense of $29, half of SGA expense fixed, half variable, flat marketing expense, flat average revenue per user (ARPU):

    Telephone services revenue $233 Mill.
    Direct Costs (60)
    Customer equipment (net) (11)
    SGA (90)
    Marketing (91)
    Depreciation ( 6)

    Net loss (25) , that is over 10% of sales.

    Their growth rate at that time will be down to 20% p.a., and profitability nowhere in sight.

    Also, their customer aquisition costs are $254 plus $29 for the customer equipment subsidy for a total of $283.
    If half their SGA expense is variable, total variable costs per line are $13, for an initial gross margin of $13.33

    If you figure in the churn rate, it takes them 27 months after a new customer signs up just to get their money back, without making any profit. Only after that time do they make $13.33 per line, but only half the customers are left.
    However, it is likely that by then the ARPU is lower, making it even worse.

    Some people have mentioned a buyout. Why would anybody spend money to buy such a huge cash incinerator? Cable and phone companies habe much lower customer aquisition costs, and these penny pinching vonage customers are not so desirable anyway.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • only chime in on up days, and hide on down days. too funny..

    • I understand where your thought process comes from..we'll have to agree to disagree :)

    • <your entire analysis is based on YOUR definition of the marginal customer. (which makes absolutely zero sense!)
      >

      What is your definition of the marginal customer? My analysis compares the profitability of customers gained this quarter - or the marginal customer - we could use a different period as "margin" but the general result would be the same - the newest customers are the least profitable (e.g., more expensive to gain and more likely to churn)and the trend line is getting worse.

      <This is completely faulty analysis...the 205,000 new customers is NET of churn..and you also can't make your type of linear assumptions regarding churn..you cannot assume anything linear about churn....so the 5.3% whatever figure is useless...>

      So what if its NET of churn... the churn rate went up to an average of 2.6% for all customers in the 3rd Q from 2.3% in the 2nd... that means that the "average" customer is 0.03% more likely to churn off this quarter than last. What accounts for this change in "average" behavior - well we are pretty sure it isn't the prior customers, the 1.85MM prior had an established churn rate of 2.3% and since the vast majority of churn occurs early in a customer lifecycle its not unreasonable to assume its the new customers that are driving the higher churn number... as for your assertion about misapplying "linear" applications of churn rates - this isn't a "linear" application of churn - you are conflating the churn for a specific group of customers fixed in time with a rolling average of new and old customers (which reflects reality) - that 5.3% number is reflective of an average churn of the latest batch of new customers with higher churn (20-30% for a short term) and a larger group older customers that have much lower churn rates...not just the churn of that quarter's customers only (that would be something like 20%)...

      <Now you take your completely fabricated "churn" number to try and make an "average" lifespan for ALL the new subs..>

      No.. now I take the churn number for the new customers (rather than the churn of ALL customers) and determine the "average" lifespan of those NEW customers - this exposes the profitability trend of the new customers which is much more important to determining health of the firm as it goes forward than looking at that number off of the average for all customers. Particularly when you compare it on a trend basis to the last quarter's new customers... If you use the average for all customers you will overstate how long you expect the new customers to stick around and understate how much cash they will generate.. which is exactly what VG management wants you to do...

      <this must be some type of elaborate joke on your part... >

      No the joke is being played by Citron and Co., and its on you...

    • "I simply asked for you naysayers to support anything you print and more subterfuge hits the msg board. You got nothing at this point."

      Bullshit. He's laid it out for you in the most elegant terms possible. You just have your head in the sand.

      "In fact, I'm adding you to ignore for not being capable of responding to the question..."

      Nyah, nyah, nyah! In other words, you know you've lost the argument.

    • <your entire analysis is based on YOUR definition of the marginal customer.>

      and your entire analysis is based on YOUR definition of the perfect customer. (which makes absolutely zero sense!)

    • <<BUT that's not the important number - what we care about is the average life of the marginal customer not all customers. >>

      your entire analysis is based on YOUR definition of the marginal customer. (which makes absolutely zero sense!)

      <<we can estimate that the marginal customer during that quarter was churning at a rate of 5.3%... this is what the 205,700 customers added would have to churn at to raise the churn rate from 2.3 to 2.6 assuming that the prior 1.85MM customers continue to churn at the prior 2.3% rate. >>

      This is completely faulty analysis...the 205,000 new customers is NET of churn..and you also can't make your type of linear assumptions regarding churn..you cannot assume anything linear about churn....so the 5.3% whatever figure is useless...

      <<So the projected average life of the marginal customer 1/.053 or 18.9 months...>>

      Now you take your completely fabricated "churn" number to try and make an "average" lifespan for ALL the new subs..

      honestly..the analysis is comical, ..this must be some type of elaborate joke on your part...

    • Whoever said that VG was going BK or to zero tommorrow?

    • Here it is (I haven't actually recalculated it since I initially did... the numbers got worse so I figured why bother - but it will be interesting to see how that works out) so here goes:

      Since the churn metric is a monthly one, the way we get to average life is 1 divided by the churn to get the average number of months of customer life 1/.026 at the end of 3Q. That number is 38.5 months...BUT that's not the important number - what we care about is the average life of the marginal customer not all customers.

      The reason is that we want to know about the marginal customer is that will tell us if each additional customer is closing the cash gap or widening it... Since the average churn rate was up 0.03 percent over the quarter - and since churn is heavily loaded to the front end - e.g., first 90 days, we can estimate that the marginal customer during that quarter was churning at a rate of 5.3%... this is what the 205,700 customers added would have to churn at to raise the churn rate from 2.3 to 2.6 assuming that the prior 1.85MM customers continue to churn at the prior 2.3% rate. That number is most certainly understated as the prior 1.85MM are, if VG follows standard service provider models, churning at a lower number than that (as the 2.3% reported for 2Q includes the high churn customers from that prior quarter)... So the projected average life of the marginal customer 1/.053 or 18.9 months... That customer generates over its lifetime $288.60 in cash flow for VG using 3Q operating margins... Each of those 205,700 customers cost $444 to acquire on a net basis meaning they would need to stick around for 29 months for the company to cash flow from that customer... a gap of over 10 months

      At the end of the second quarter I believe that gap was 4 months... so the marginal customer is widening the cash gap - not closing it...

    • loosing another as I type, they suck shit.

    • <<..so they must hang onto that customer for Z months in order for that customer to generate positive cash flow. Today that number is negative. >>

      I don't think that is correct...if you have posted your analysis on another post, please provide the link...

    • View More Messages
 
VG
3.80+0.030(+0.80%)Dec 22 4:01 PMEST

Trending Tickers

i
Trending Tickers features significant U.S. stocks showing the most dramatic increase in user interest in Yahoo Finance in the previous hour over historic norms. The list is limited to those equities which trade at least 100,000 shares on an average day and have a market cap of more than $300 million.
Gilead Sciences Inc.
NASDAQMon, Dec 22, 2014 4:00 PM EST
Rite Aid Corporation
NYSEMon, Dec 22, 2014 4:01 PM EST