What: Shares of Vonage Holdings (NYSE:VG) rose as much as 18% on Wednesday morning, then retreated to a more modest 11% gain as of 1:15 p.m.. Either way, the stock is setting multiyear highs today, dating all the way back to the winter of 2006.
So what: The veteran of Internet-based communications services reported third-quarter results in the early morning hours, edging past Wall Street's earnings and revenue estimates. Vonage's adjusted earnings held steady year over year at $0.07 per diluted share while sales increased 4% to $223.4 million. This was the company's fourth consecutive positive revenue surprise, and Vonage has met or exceeded analysts' earnings projections in every report since at least January of 2011.
Now what: Vonage is a long way removed from the bad old days, when Internet telephony seemed like an overhyped gimmick and major telecoms were threatening to put the company out of business via expensive lawsuits.
In the third quarter, Vonage continued to show that its revamped business model has sustainable value, with a 66% gross margin and $28 million of positive free cash flows. Management is essentially winding down its less profitable consumer services in a disciplined manner, keeping the division profitable along the way, while refocusing on corporate clients in search of a modernized communications platform.
"We made significant progress integrating our recent acquisitions to build a scalable, efficient organization capable of serving the full spectrum of business customers from SMB up through large enterprises," said Vonage CEO Alan Masarek in a press statement, underscoring the largest selling points of its business-class services.
Vonage's success story did not translate into a marketwide surge. Chief rival 8x8 (NASDAQ:EGHT) traded sideways on Wednesday, largely in line with the broader market and certainly not boosted by Vonage's good news. In all fairness, 8x8 reported its own results as recently as two weeks ago, igniting a quick gain.
Vonage and 8x8 have risen by comparable amounts since the 8x8 report, both beating the market along the way. Vonage shares have now doubled over the last year while 8x8 scored a respectable 42% gain.
Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.