Monday, August 24, 2015

Are Vonage Acquisitions Adding up?

Vonage is on a buying spree that started with Vocaolcity in 2013 for $130M ($105M in cash). Next it set its sights on the mid-market where it moved from Hosted PBX to UCaas via the Broadsoft platform. It grabbed up TeleSphere first for $114 million in cash and stock. Then it grabbed Simple Signal for $25M. This past week saw Vonage buy iCore for $92M.

In May of this year, Vonage bought gUnify, the middleware for BroadWorks to integrate with Google, Clio, Zendesk, Salesforce, etc. A quiet move that was mixed in with Q2 earnings noise.

"For the first quarter of 2015, Vonage reported revenue of $220 million compared to $221 million in the year ago quarter." Yet "This is the Company's first full quarter of results including Telesphere, a Vonage Company, which was acquired on December 15, 2014." So revenue went down despite the acquisition?

"Vonage Business results include Vonage Business Solutions ("VBS", Vocalocity) and Telesphere, and will include SimpleSignal in the second quarter. Revenue at Vonage Business was $42 million in the first quarter, a year-over-year increase of 49% on a pro-forma basis, as if the Company had owned Telesphere for all periods. Customer churn was 2.2%, an increase from 1.6% in the year ago period. Ending seats were 338,000, up from 196,000 seats at the end of the first quarter of 2014, reflecting strong organic growth and the addition of Telesphere." [press release]

The consumer side had some losses - "Vonage's Consumer business reported revenue of $178 million in the first quarter of 2015 compared to $202 million in the prior year period." Business revenue - inorganic and organic - are barely keeping up with the consumer losses. And "Average revenue per line ("ARPU") was $27.97, down from $28.54 in the year ago period."

142K seats were added -- no idea how many came from acquisition and how many were "organic".

Some day - 2 years maybe - Vonage will be 75% Broadsoft shop selling B2B UCaaS with a minimal amount of consumer business, mainly from its mobile apps and international play.

PingTone was grabbed by Fusion last year. Globalinx got acquired by Birch. Take the big guys out - Sprint, VZ, XO, Comcast & the cablecos - and the Broadsoft customer base in the US is shrinking in number. No idea how that plays out, especially for the 275 smaller customers, who are now dwarfed by Birch, Vonage, Comcast and VZ.

It would be a good question to pose at Connections, BSFT's annual customer executive forum. Likely, remember what happened to the M6 platform? That is likely the same answer. Three other factors: (1) BSFT is pushing its own white-label service; (2) its alignment with the Big Boys; best example being what it did for VZ; and (3) the BSFT tax is high. The maintenance fees or software licensing fees are higher for BSFT than any other platform. What happens when it has to live off just those fees because no one is dropping $1M for a new softswitch?

On examination of the members of the Cloud Comm Alliance, new members are coming from Europe. Old members are changing logos and hanging new signs.

Just something to ponder.

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