Vonage may have been one of the early consumer VoIP providers, but its 2017 outlook illustrates that it has set itself to become a larger player in the cloud-based business services market segment.
This was certainly evident in Vonage’s fourth quarter earnings where business services accounted for 45% of the company’s consolidated revenues.
Alan Maserek, CEO of Vonage, told investors during its fourth quarter earnings call that the service provider’s business services revenues are on track to surpass consumer.
“We expect business revenues to overtake consumer revenues this year,” Maserek said.
Masarek’s thesis about business services is reflected in Vonage’s 2017 outlook.
The service provider has forecast total Business revenue to be in the range of $487 million to $493 million, while consumer revenue will be in the range of $483 million to $492 million.
Vonage said this outlook reflects the company’s “continued focus on optimizing the business for profitability and cash flow.”
Growth in Vonage’s business segment will be driven by two main services: Unified Communications as a Service (UCaaS) and Communications Platform as a Service (CPaaS).
UCaaS, CPaaS growth opportunities
In the business segment, the Unified Communications as a Service (UCaaS) UCaaS and CPaaS were the key revenue drivers.
Vonage reported $84 million in UCaaS service revenue, up 18% from the same period a year ago. The service provider also cited $27 million CPaaS pro forma service revenue, up 43%.
At the end of 2016, Vonage 638,000 UCaaS seats, up from 542,000 seats in the year ago quarter, reflecting what the service provider said was strong organic growth.
The service provider said in its 2017 outlook that it expects total business revenue, which includes UCaaS and CPaaS, in the range of $487 million to $493 million.
“We’re seeing early success from customers who are choosing Vonage because we offer both CPaaS and UCaaS solutions,” Maserek said.
Electronic Restoration Services selected Vonage for their 250-seat UCaaS deployment. They are also using SMS APIs to enable contextual communications with their customers to improve customer engagement.
In addition to UCaaS and CPaaS, the service provider also sees potential with SD-WAN via its Smart WAN offering. This allows Vonage to offer QoS over a lower-cost DSL or cable modem broadband connection at particular company’s location.
“Our Smart WAN tools, which is our SD-WAN offering, lets us provide QoS even in a broadband situation,” Maserek said. “It’s less necessary at times to pull the private dedicated circuit to have a dedicated voice line.”
Aligning with AWS
While the service provider has a bright outlook for UCaaS and CPaaS, Vonage is not resting on its laurels.
The service provider announced Amazon Web Services named Vonage as one of its launch partner for Amazon Chime. AWS is also working with Level 3 Communications.
Amazon Web Services said Chime takes the “frustration out of meetings” by delivering video, voice, chat, and screen sharing.
Set to be available in the second quarter, Vonage will provide Amazon Chime Pro Edition to its business customers at no additional cost, delivering a richer conferencing, video, and collaboration experience integrated with Vonage’s unified communications solutions.
“Our partnership with AWS is industry shaping because the integration of our UCaaS solution with Amazon’s collaboration brings unmatched productivity to business users,” Maserek said. “We believe AWS chose us as their UCaaS partner because our leadership in cloud voice communications matches well with Amazon’s leadership in cloud services.”
Here’s a breakdown of Vonage’s key metrics:
Business services: Total Business revenue grew 56% year-over-year to $111 million in the fourth quarter of 2016. For the year 2016, Vonage’s business revenue rose 72% year-over-year to $376 million.
Business service revenue was $92 million, a 69% increase from the fourth quarter of 2015. Likewise, full year service revenue was $302 million, up 77% from the prior year.
Consumer services: Revenue in the consumer segment was $136 million in the fourth quarter, down 14% from the prior year's quarter. Full year 2016 revenue was $579 million, down 14%, reflecting the company's decision to redeploy capital into the Vonage Business segment.
Consumer customer churn was 2.2% in the fourth quarter, in line with the year ago quarter.
Finally, Average revenue per line (ARPU) in Consumer Services was $26.11, down from $26.93 in the year ago period. The Consumer segment ended the fourth quarter with 1.7 million subscriber lines.
Financials: Vonage reported fourth quarter revenue of $247 million, up from $230 million in the year ago quarter. Income from operations was $5 million, down from $8 million in the prior year quarter.
For the full year 2016, Vonage reported revenue of $956 million, up 7% from $895 million in the prior year. Income from operations was $44 million, down from $53 million in the prior year.
Looking forward towards the rest of 2017, Vonage expects consolidated revenues to be in the range of $970 million to $985 million.