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  1. Home
  2. / Investing
  3. / Technology

Vonage Is Back in the 'Business of Better' With Nexmo

Vonage reports solid third-quarter results with the platform in its portfolio.
By ANDERS KEITZ Oct 26, 2016 | 12:31 PM EDT
Stocks quotes in this article: VG, TWLO, AMZN

Vonage Holdings  (VG) finally had its first full quarter with its Twilio (TWLO) look-alike, Nexmo -- and management liked the results so much, the company updated its outlook for the year.

Working to be back in the "Business of Better," Vonage reported top- and bottom-line beats for the fiscal third quarter. Earnings of $0.08 per share on revenue of $248.4 million surpassed the Street's forecasts. The Vonage Business revenue of $106 million, which includes $24 million of Nexmo revenue, jumped 86% year over year.

The company adjusted its full-year guidance for the Vonage Business segment to reflect the expected inflection from Nexmo. It now anticipates revenues to be in a range between $374 million and $377 million, up from $365 million to $370 million. Vonage said earlier this year that Nexmo revenue is projected to be in the high $80 million range for the full year 2016.

The stock soared on the quarterly results, up by as much as 17% on higher-than-average volume during midday trading Tuesday.

Real Money contributor James "Rev Shark" DePorre added more to his VG position following the earnings report. While being more of a technical trader than a fundamental one, the combination of the EPS beat and the overall story make him believe Vonage can build some momentum.

"Technically, the stock has a very nice-looking cup-with-handle pattern formation since November last year," DePorre said on Wednesday. "I think that will attract attention."

Aside from the technical aspect, investors should also be attracted to Vonage for the Nexmo story. It is already established as the second leader in the Communications Platform as a Service (CPaaS) space, right behind Twilio. (CPaaS is a cloud-based platform that allows developers to add communications features like voice, video and messaging in their own applications.) Furthermore, management expects the recent launch of Voice API will double the addressable market.

"Almost every company is looking to use a CPaaS in some form and VG is seeing strong demand in cross selling," wrote Oppenheimer's Timothy Horan in a research note Wednesday. He added that Nexmo has seen an increase in registered developers to 175,000 from 130,000 in just five months.

Vonage CEO Alan Masarek said during the conference call with analysts that there are "many deals in the pipeline" with existing customers to address their CPaaS needs. And it's already winning big deals, as William Blair analyst Dmitry Netis noted in a Sept. 23 note that Amazon (AMZN)  Web Services chose Vonage's Nexmo for its simple notification service (SNS). (Amazon is a holding in TheStreet's Growth Seeker portfolio.) 

Considering that Nexmo can rely on Vonage's already built-in customer network, it is sure to continue expanding its CPaaS reach, accelerating the company's growth. This makes Oppenheimer's Horan believe Vonage is "quite inexpensive versus peers" -- it is certainly cheaper than CPaaS pure-play Twilio, which is trading at around $39.91.

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Employees of TheStreet are restricted from trading individual securities.

Oppenheimer & Co. Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
TAGS: Investing | U.S. Equity | Technology | Telecom Services | Earnings

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