The company has spent heavily on marketing to increase its customer base to 1.4 million subscriber lines. During 2004 and the first nine months of 2005, Vonage spent $232.4 million on marketing. Revenues since 2003 have risen from $18.7 million to $174 million in the nine months ended Sept. 30, 2005.
Marketing expenses, however, has cut into the company's bottom line. Vonage's net loss from its inception to Sept. 30 of last year was $310 million. In the first three quarters of 2005, the company lost $189.6 million, while spending $176.3 million on marketing.
Nevertheless, Vonage plans to continue spending heavily on marketing to drive growth. "While this strategy will have the effect of delaying or preventing us from generating net income in the near term, we believe that our focus on growth will better position us as a strong competitor in the long term," the company said in the SEC filing.
Among its risk factors, however, is competition from companies with greater financial resources. EBay Inc, for example, acquired Internet telephony vendor Skype, last year. In addition, major telephone companies, such as AT&T, are moving into the market for voice over the Internet.