Internet-based voice calls are disrupting traditional phone services -- wired or not -- as we speak. That thesis just scored some support from VoIP specialist Vonage
Sales slid 2% year over year to $212 million, exactly matching analyst expectations. A drastically improved balance sheet led to 72% lower interest costs year over year, which in turn helped Vonage beat the Street's expectations for its bottom line. Adjusted earnings came in at $0.09 per share, $0.02 ahead of the analyst consensus.
Shares soared as much as 12% on the news. That doesn't make Vonage expensive, though. Shares have lost 19% of their value so far in 2012, even after this sudden jump, and are priced at just 1.2 times trailing earnings today. Citing the company's "sustainable cash flow, strong balance sheet, and the belief that its stock represents a highly attractive value," Vonage's board also introduced a $50 million share buyback program. The company is now authorized to buy back and retire about 11% of its currently outstanding shares by the end of 2013.
That's a shareholder-friendly move at first glance, but I think Vonage could put that cash to better use. Corporations are notoriously bad at creating shareholder value through buybacks, and Vonage could stand to pour some more cash into its marketing efforts. The company is fighting high customer churn and shockingly slow sign-up growth, even though its low-cost services are robust and seem timely in this age of squeezed consumer budgets.
The situation reminds me of Netflix
Vonage can't afford to let direct rival magicJack VocalTec
We just created a premium report on Netflix, replete with a full year of up-to-the-second analysis. Read up on the company and its recent history of unfortunate business decisions by clicking here. Vonage's board could certainly learn a thing or two from that story.