Vonage has revealed that its revenues dropped five percent year-over-year (YoY) in Q1.
The news comes as Ericsson – which acquired Vonage in 2022 – released its first-quarter financial report for 2024.
Sharing further details during an earnings call, Borje Ekholm, CEO of Ericsson, linked the drop to a substantial contract loss from the previous quarter and the “decision to reduce our operations in some countries.”
“Of course, we need to prudently manage the current business in Vonage,” he continued. “But our strategic ambition with Vonage is to build up the Global Network Platform.”
While that shift in strategy is significant, Ekholm confessed:
The group (Vonage) is trending well behind your and our initial expectations.
The Cut Back on Vonage’s Global Operations
Sebastien Sztabowicz, an Analyst at Kepler Cheuvreux,who joined the earnings call, didn’t want to skip past the point of a reduction in Vonage’s global operations.
He asked: “What are the reasons behind that exactly? What is happening in those countries with Vonage?”
Sztabowicz received a coy response from Lars Sandstrom, CFO of Ericsson, who said: “We look at the different markets where it makes commercial sense to invest.
“We are focusing on the long-term investments here to drive this part of the industry.”
Those long-term investments will likely center on driving the growth of its Global Network Platform – which combines Ericsson’s 5G networks with Vonage’s CPaaS APIs
To help execute that vision and oversee the rest of Vonage’s business, the company appointed Niklas Heuveldop as Vonage CEO in January, the former President & CEO of Ericsson North America.
Heuveldop took the mantle from Rory Read, who had held the position since July 2020, and oversaw Vonage’s sale to Ericsson.
Soon before, in November, Ericsson announced a Vonage impairment charge of $2.92BN.
Impairment accounting evaluates an investment’s market value. If that value drops, the organization lowers the asset amount on its balance sheet by a specific number.
That’s an impairment charge, and 2.92BN is a huge number, which shows that Vonage’s value has declined by more than 46 percent since the $6.2BN acquisition.
Worse still, Ericsson’s latest financial report suggests Vonage “may record additional impairment charges in future.”
A Vonage or an Enterprise Communications Problem?
While Vonage’s pivot towards Ericsson’s broader strategy is perhaps the primary cause for its revenue shortcomings, the problem may expand beyond the company itself and reflect a broader enterprise communications trend.
Take CCaaS. Reflecting on the current state of the market, Dave Michaels, Lead Analyst at TalkingPointz.com, posted on LinkedIn:
It’s not all about features. If you are evaluating Contact Center and CCaaS solutions, another key consideration is if the provider will survive the impending bloodbath that will take place in a year or so. Most won’t.
That’s a bold take, butCCaaS growth is decelerating, and more enterprise giants – including Microsoft, Google, and Zoom – have entered the market over the past two years.
Meanwhile, much of the oxygen within the UCaaS space has been swept away by Microsoft Teams, which now has 320MN active monthly users.
In addition, one UC provider will release a new differentiative feature, and – just a few months later – so does the competition.
As a result, vendors keep adding features to their products, but they’re not charging more.
In conversation with UC Today, Jon Arnold, Principal Analyst at J Arnold & Associates, warned that this is leading the market towards a “race to zero”.
These two trends may well concern Vonage – and its many enterprise communications competitors – moving forward.
And, while Vonage is also a prominent vendor in the burgeoning CPaaS and conversational AI spaces, these are crowded, competitive markets, too.
