Om Malik has a good summary of the Vonage information, with links to what's being written, though I still think the jury is out in terms of how good the S-1 looks. Here's part of what he has to say:
“During the nine months ended September 30, 2005, we experienced average monthly customer churn of 2.11%. Our churn rate among those U.S. direct and retail customers with us for more than six months was lower,” the company says, in its filing. That seems to be a rather innocuous number. To be fair, the company’s churn rate of 2.11% is pretty darn good - if you compare it to other Internet related services business such as web hosting and DSL High Speed Internet that see about 1%-to-3%. Vonage is actually doing much better than it had reported earlier. [Talk about being wrong in my estimates previously. The numbers reported in the S-1 were exactly half of what I had estimated with the help of others. My original estimate was 4% churn and $400-per-customer acquisition cost.]
Ok, perhaps those Churn numbers and customer acquisition costs aren't too bad, but is Vonage moving the goalposts to kick a field goal? Consider this most recent quarter. The company states that marketing costs came to $208.76/gross subscriber. Yet, net subscriber ad's were 25% lower than gross, meaning that acquisition costs per net addition came to $275.34. Also, for this company, marketing costs aren't the only cost to acquiring customers. When you look at CPNA (Costs per Net Acquisition) which takes into account net equipment costs, and other set up, it comes to over $308/net addition.
Furthermore, as Om notes, ARPU (Average Monthly Revenue Per User) is in a steady decline, and for the last quarter stands at $25.79 per user at $308/net addition, it will take take them 1 year for them to make back their revenue, but if we assume that net margins will be 20%, probably quite generous, then it would take them 5 years to make this up. Net margins, for mature telephony is closer to 10%, and Vonage is competing against companies giving analogous service away for free, like Skype.