Vonage Tanks 12% On 4Q Profit Miss, Consumer Business Decision

Shares of Vonage Holdings sank 12% as the cloud communications company’s earnings in the fourth quarter lagged analysts’ estimates. Additionally, the company pulled out of a much anticipated plan to divest its consumer business segment.

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The company reported 4Q adjusted earnings per share (EPS) of $0.02, that fell short of analysts’ estimates of $0.05. Meanwhile, revenues rose 4.2% to $323 million year-on-year and came in ahead of the Street consensus of $316.2 million.

Furthermore, Vonage Holdings (VG) told investors that following a nine-month strategic review, it has decided to terminate the sale of its consumer business and retain it.

Vonage CEO Rory Read said, “As we committed, we have completed a thorough review of the Consumer business and we have decided to retain this business. Our decision was driven by valuation, the $600 million of cash generation we expect from Consumer over the next five years, and what is best for our company and shareholders.”

Read commented about the 4Q results, “We took decisive action over the past six months to improve operational efficiency and strategically invest in areas where our solutions best fit the needs of our customers. We continued to execute well in the fourth quarter and delivered solid results.”

Vonage’s revenues in 4Q were driven by its communications platform service which saw sales rise 17% year-on-year to $230 million. Within this, application programming interface (API) revenues increased 33% highlighted by high-value APIs, which grew 130% as customers continued to expand usage on the platform.

In 1Q FY21, Vonage expects revenues to generate between $314 million to $318 million on adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of between $42 million to $46 million.

For FY21, the company’s revenue guidance is between $1.32 billion to $1.34 billion, with adjusted EBITDA forecasted to land between $190 million to $200 million. (See Vonage Holdings stock analysis on TipRanks)

Following the earnings results, Stephens analyst Ryan MacWilliams reiterated a Buy rating and a price target of $18 on the stock. Williams said, “Vonage posted a solid print, but we believe shares are likely to move lower today as investors hoped VG would sell its legacy Consumer segment. VG investors must now take the long-way to a peer-group multiple re-rating as new management drives API investment and revamps UC/CC [unified communications / cloud communications] growth.”

The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating. That’s based on 2 analysts recommending a Buy and 2 analysts suggesting a Hold. The average analyst price target of $15.13 implies 1.9% upside potential to current levels.