Don't miss Tom Gardner tonight on CNBC's "On the Money," airing at 7 p.m. ET.
Changes are afoot at Vonage
Michael Snyder, who came over from Tyco
Slashing expenses will trim $140 million of annual overhead at the company, with a $30 million reduction through layoffs and $110 million hacked off the marketing budget. You may be relieved to find that you'll be seeing fewer of those Vonage commercials, but investors should wonder how that will affect new accounts.
After closing 2006 with 2.2 million lines, the company added another 166,000 lines in the quarter that ended in March. The company's churn is running at a monthly rate of 2.4%. Replacing those departing customers isn't cheap; Vonage is spending $275 per gross subscriber addition in marketing expenses.
The moves come just as patent-rich Verizon
Worst-case scenario? Vonage dies. Best-case scenario? Vonage lives on but will probably have to pay Verizon for using its patents and will find its money-losing operation becoming even more of a bleeder.
It's been a long downward spiral for Vonage, and things have only gotten worse for the company since its disappointing IPO last year. It may be the edgy name in this niche, but giants like Comcast
On a less intuitive level, Internet telephony software players like eBay's
Other dark chapters in Vonage's past:
- Vonage: The Most Successful IPO in Years
- Don't Pity Vonage
- Foolish Fundamentals: Service Provider Metrics
Longtime Fool contributor Rick Munarriz regrets touting Vonage a few years ago as a much-anticipated IPO. He changed his tune once the company actually filed, though. He does not own shares in any of the stocks in this story. He is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. Tyco is an Inside Value pick. The Fool has a disclosure policy.