Internet telephony provider Vonage Holdings (NYSE:VG) will be reporting second-quarter earnings Thursday. Let's get a preview of what's due.

What analysts say:

  • Buy, sell, or waffle? Fewer analysts are following Vonage these days, a total of 11 to be exact. Of these, eight maintain a hold rating on the stock and three are on the record with a sell rating. In our Motley Fool CAPS investor database, more than 1,120 of our 60,000 users have rated the stock and have collectively panned it with a one-star rating overall.
  • Revenue. The average analyst expects Vonage to report $208 million this quarter, up 45.1% from last year.
  • Earnings. Analysts on average are expecting a $0.34-per-share loss, much better than the $1.16-per-share loss a year ago.

What management says:
Vonage is fighting several dragons at once, including intense competition from telcos such as AT&T (NYSE:T) and Qwest (NYSE:Q), an overly cash-hungry business model, and a myriad of lawsuits. One legal battle has already hit home -- litigation from Verizon Communications (NYSE:VZ) has resulted in a $58 million award plus a 5.5% royalty to Verizon. Another significant patent-infringement suit brought by Sprint Nextel (NYSE:S) will head to the courtroom later this year. Chairman Jeffrey Citron maintains, though, that "while the patent litigation has challenged our business, it has not distracted our focus on providing consumers with the opportunity to choose a better phone service." Unfortunately, that opportunity doesn't translate into profits for shareholders yet.

What management does:
Management is taking steps to cut costs, including reducing marketing expenses by $110 million this year and cutting headcount by 10%. These actions won't help Vonage's effort to sign up more subscribers and keep them around, though, and will quite likely further hurt these metrics.

Metric

12/05

03/06

06/06

09/06

12/06

3/07

Subscriber Base (in thousands)

1,269

1,597

1,853  

2,058

2,224

2,390

Churn

1.9%

2.1%

2.3%

2.6%

2.3%

2.4%

Average Revenue Per Line

$27.22

$27.85

$27.70  

$27.40  

$28.25

$28.31

As for margins, the red ink is slowly fading as revenues grow, but it's still nowhere near black:

Margin

12/05

3/06

6/06

9/06

12/06

3/07

Gross

53.8%

55%

57.2%

59.9%

52.9%

54.7%

Operating

(91.4%)

(75.7%)

(61.1%)

(49.1%)

(51.6%)

(42.6%)

Net

(97.1%)

(82.3%)

(68.7%)

(56.5%)

(55.7%)

(47.7%)
Metrics from SEC filings. Data for margins courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Another bell tolled for VoIP providers a few weeks back, when Internet telephony provider Sunrocket quickly shuttered its doors on 200,000 subscribers. Fearing Vonage may eventually do the same, investors have continued to bid shares down. With more than $400 million in cash and equivalents on the books, however, Vonage has lots of time to contemplate its fate. Most likely, the business will eventually succumb to competition and subscribers will be bought out by more established firms such as cable providers Comcast (NASDAQ:CMCSA) or Time Warner Cable (NYSE:TWC). Without some very positive developments this quarter, the company will continue a march toward an eventual end.

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Normally a pillar of strength, Fool contributor Dave Mock is as weak as a newborn kitten when it comes to homemade ice cream. He owns no shares of companies mentioned here. Dave is the author of The Qualcomm Equation. The Fool's disclosure policy can beat up your disclosure policy.