Why Vonage Holdings, Inc. Rose Today

The cloud-based communications expert is abandoning the low-margin consumer market in favor of profitable business-grade clients.

Anders Bylund
Anders Bylund
Oct 26, 2016 at 1:38PM
Technology and Telecom

Image source: Getty Images.

What happened

Shares of Vonage Holdings (NYSE:VG) rose as much as 18.1% higher on Wednesday morning, lifted by a surprisingly strong third-quarter earnings report.

So what

Vonage's sales increased by 11% year over year, landing at $248 million. Adjusted earnings per share jumped from $0.05 to $0.09, as non-GAAP net income rose 73% higher.

The operator of cloud-based communications services crushed Wall Street's earnings targets while edging out revenue estimates. Analysts would have settled for earnings of roughly $0.05 per share and sales in the $247 million neighborhood.

Now what

Consumer service sales continued to shrink, falling 14% year over year in a planned strategy shift. Vonage is focusing tightly on the more lucrative business-grade segment, where revenue jumped 86% higher. The more profitable product mix helped Vonage beat earnings targets in the third quarter, and the company also raised its full-year operating income guidance by approximately 6%.

Vonage is on a more profitable track under this new strategy, and should continue to boost bottom-line profits as long as management can execute on the new plan.