Vonage Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Internet-telephone service provider Vonage (NYS: VG) sank as much as 17% today after the company reported its fourth-quarter results.

So what: Vonage actually did report year-over-year adjusted profit growth ($0.10 vs. $0.06), but its profit nonetheless missed Wall Street estimates by $0.02. Revenue was relatively flat at $215.7 million. The real reason investors are pounding the stock relates to Vonage's forecast that it would increase spending by an additional $5 million to $10 million per quarter in 2012, which will reduce quarterly EBITDA to a range of $30 million to $35 million as compared to the $40 million it reported this quarter.

Now what: It's amazing to me how long it took Vonage to become profitable, and now that it finally has had a taste of profits, it's eager to throw all of its free cash right out the window. Vonage shareholders have every right to be skeptical of Vonage's increased spending. Facing the facts, it's very difficult being a second-tier phone service provider when a select few companies with much deeper pockets dominate the market. I haven't been a fan of Vonage for years and today's announcement just reinforced that view.

Craving more input? Start by adding Vonage to your free and personalized watchlist so you can keep up on the latest news with the company.

At the time thisarticle was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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