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Why Vonage Holdings' Stock Fell 17% This Morning

By Anders Bylund – Nov 6, 2019 at 11:29AM

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The cloud communications veteran posted disappointing third-quarter results today.

What happened

Shares of Vonage (VG) fell as much as 16.8% on Wednesday morning, recovering to a milder 15.5% downside as of 10:50 a.m. EST. The provider of cloud communications services for businesses posted third-quarter results before the opening bell, largely leaving investors unimpressed.

So what

Vonage's third-quarter revenues rose 15% year over year to $302.5 million, just below Wall Street's consensus target at $302.9 million. The company saw an adjusted net loss of $0.02 per diluted share, down from a profit of $0.09 per share in the year-ago report and far below the analyst consensus, which had pointed to a $0.07 profit per share.

Digital rendering of a red rotary phone under a small cloud that's dropping torrential rain on it.

Image source: Getty Images.

Now what

The stock has now fallen 21% over the last quarter, including today's sudden drop. Even so, Vonage's shares trade at a hefty valuation ratio of 53 times trailing earnings. The company stands in the midst of a sharp strategy update, relaunching a portfolio of diverse business-class services under the unified Vonage brand. Management hopes to accelerate its marketing and customer acquisition efforts under this simpler corporate image.

"We've made a lot of progress on our strategy and continue to invest in the right areas," said CEO Alan Masarek in a prepared statement. "Market demand continues to grow, and Vonage is well-positioned for long-term success."

So Vonage intends to go places, but its investors are not showing any patience with a rebranding effort that could take years to pay any serious dividends. Personally, I view the price drop as a buying opportunity despite the nosebleed valuation, because I like what the company is doing here.

Anders Bylund 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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