Vonage Holdings Corp. reported a narrower quarterly loss on Thursday as it sacrificed subscriber growth by spending less on advertising its Web-based calling service, sending shares up 9 percent.

Vonage also said it is running ahead of schedule in its plan to turn an operating profit by the first quarter of 2008, and it has found a way to avoid infringing Verizon Communications Inc.'s patents, soothing worries over whether the company would fold.

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

Vonage said its 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 analysts' forecast for a 34 cent loss, according to Reuters Estimates.

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

Vonage shares were up 18 cents at $2.38 in afternoon trade on the New York Stock Exchange. They are still down more than 85 percent from their IPO price of $17 due to worries about heavy marketing costs and growing competition from cable television operators.

The bottom line is looking better, but in terms of market share, they've now got 20 percent of the consumer VoIP market. At one point they had all of the market to themselves, said Stephan Beckert, analyst at TeleGeography Research Group.

Vonage is a pioneer in selling Voice over Internet Protocol (VoIP) services to consumers looking for a cheaper alternative to regular phones. Now cable and other Internet firms offer similar services.


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 Vonage is still appealing the court's decision.

Citron also dismissed comparisons between the company and SunRocket Inc., a rival that shut down its business in July amid funding difficulties.

Vonage is here to stay, he said.