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Vonage Loss Narrows on Reduced Ad Spending, Shares Surge

Vonage Holdings reported a narrower quarterly loss on Thursday, sacrificing subscriber growth by spending less on advertising its Web-based calling service, and its shares rose 10 percent.

Vonage also said it had found a way to avoid infringing on patents that a court said belong to Verizon Communications, soothing worries over whether the company could stay in business.

The net loss in the second quarter shrank to $34 million, or 22 cents per share, from a loss of $74 million, or $1.16 a share, a year earlier.

The company, which has posted heavy losses since its initial public offering in May 2006, said its loss excluding special items was 12 cents per share. That was much smaller than the average analyst forecast for a 34 cent loss, according to Reuters Estimates.

Revenue rose 43 percent to $206 million. Analysts on average expected revenue of $209.5 million.

"We've really made some substantial changes in bringing the company closer to profitability," Chairman and CEO Jeffrey Citron said in an interview with Reuters, adding that the company had turned the corner in "one of the most difficult periods in Vonage's history."

He also said Vonage was "ahead of schedule" to achieve an adjusted operating profit by the end of the first quarter of 2008.

Vonage stock was up 22 cents to $2.42 in early afternoon trade on the New York Stock Exchange.

Slower Subscriber Growth

But Vonage shares are still down more than 85 percent from their IPO price of $17 amid worries about heavy marketing costs and growing competition from cable and telecommunications companies.

The company, which had previously said it was prioritizing growth over profitability, cut its marketing spending in the second quarter to $68 million, or 33 percent of revenue, from $90 million, or 62 percent of revenue, a year earlier.

As a result, it gained only about 57,000 net subscribers, decelerating from a gain of 166,000 in the first quarter. It ended the second quarter with 2.45 million users.

Average monthly customer churn, or cancellations, rose to 2.5 percent from 2.4 percent in the first quarter.

Citron said the legal battle with Verizon over technology patents also hurt business during the quarter.

Vonage said it completed the development of technology "workarounds", or ways to avoid infringing on patents that a court decided belong to Verizon.

"The deployment of the workarounds is a significant step towards moving ahead with our business in the wake of the Verizon litigation," Citron told analysts on a conference call, adding that the company was still appealing the court's decision.

Citron also dismissed comparisons between Vonage and SunRocket Inc, a rival that shut down its business in July amid funding difficulties. Vonage is "here to stay," he said.

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