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Why Vonage Stock Popped 12% This Morning

By Rich Smith – May 8, 2019 at 2:20PM

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Three times the profits Wall Street expected? Yep, that's an earnings beat.

What happened

"VoIP" telephony specialist Vonage (VG) stock is surging -- rising 12% in early trading Wednesday and still up 8% as of 2 p.m. EDT, after the company released earnings this morning showing a first-quarter 2019 pro forma profit roughly three times as big as what Wall Street had been expecting .

Heading into earnings, Wall Street had predicted Vonage would earn only $0.02 per share, adjusted for one-time items, on sales of $277.6 million. Instead, Vonage says it earned $0.06 per share on sales of $279.5 million.

300% in big red letters

Image source: Getty Images.

So what

Granted, these are all pro forma results, and when calculated according to GAAP financial accounting standards, it turns out Vonage actually lost $0.01 per share last quarter. Still, this was a better result than Wall Street had banked on, and it appears to be good for an "earnings beat" as a result.

Vonage is shifting its emphasis from consumer to business VoIP, with business revenue up 31% year over year and consumer revenue down 15%, "as planned," as the company explained. Importantly, Vonage is experiencing lower customer churn among its business clients, which now provide 64% of its revenue.

CEO Alan Masarek called the numbers "a solid start to the year," with sales increasing 10% overall.

Now what

Vonage announced new guidance for the second quarter of 2019, predicting that business revenue will continue to grow to $194 million-$196 million, and consumer revenue will rise to $96 million-$97 million. Even at the low end of these estimates, that would make for 11.5% overall sales growth (better than in Q1) and be ahead of analyst estimates.

Or in other words, after "beating earnings" once in Q1, Vonage looks set to do it a second time in Q2.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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