Vonage 3Q loss widens on charge linked to rally

Vonage Holdings Inc. posted a much wider loss for the third quarter on Wednesday, ironically attributing the gap to its stock rally late in the period. The Internet phone service provider said adjusted results produced its second consecutive quarterly profit, but the stock nevertheless dropped sharply in morning trading.

Vonage posted a net loss of $54.6 million, or 33 cents per share, compared with a year-ago loss of $7.8 million, or 5 cents per share.

Most of the drop reflects a $63 million charge resulting from the sharp rise in the price of Vonage's stock during the quarter.

The stock closed Sept. 30 at $1.39, more than triple its starting point of 38 cents. At its height, shares traded nearly seven times higher than at the beginning of the quarter.

The spike came in late August, around the time Google Inc. announced its new voice application. Market observers suggested that helped generate new interest in the voice-over-Internet-protocol technology pioneered by Vonage, and possibly set the company up for a buyout. Vonage also launched its World service, which offers international calling for a flat rate, in mid-August, and a smartphone mobile application on Sept. 1.

Vonage said it had to book the huge charge because a feature in some of its convertible bonds increased in value following the stock rally.

Excluding charges, the company said income was $4.6 million, or 3 cents per share.

The per-share results reflect 7 percent more shares in the latest quarter.

Revenue dipped 2 percent to $221.5 million from $225.8 million. Average revenue per user, an important measure in the industry, rose to $29.89 from $28.75 in the prior year period.

CEO Marc Lefar said Vonage World attracted new customers, boosting new subscriptions in the last six weeks of the quarter to more than double the rate in the first seven weeks of the period. Even so, the company posted a net subscriber loss, ending the quarter with 2.4 million customers, compared with 2.6 million a year ago. There was a net loss of 50,000 subscribers from the June quarter.

Customer churn, or cancellation rate, increased to 3.4 percent from 3 percent last year, which Vonage attributed to customer nonpayment as a result of the recession.

Vonage stock fell 39 cents, or 22 percent, to $1.39 in morning trading on heavy volume.