Economics Of Industry

This article discusses how the voip market doubled (in terms of subscribers) in 2005. The percentage increase in Asia is 83% in comparison to North America's estimated 51% growth. One reason for this as described int he article is the creation or upgrading of small businesses overseas. They give the estimated reports from that year for each continent, and how much each sector is estimated to grow. Hopefully I can get some more current numbers to work with, and see how the market has actually grown in comparison. So what has been happening to the highly prospective industry since 2005?

A TMC article discusses possible bankruptcy from Vonage in the next year or two from several lawsuits that they have been filed against by Verizon and AT&T, involving patent rights. Even though vonage was the leader in VoIP for the last few years (in terms of household subscribers) the company could plummet if the lawsuits hold through in favor of AT&T or Verizon. A Dow Jones newswire report on March 17, 2008 entitled Vonage Holdings Auditor Raises Going Concern Doubt reports that Vonage Group had a $217 million working capital deficit at December 31, 2007. That means the cash it earned was $217 million less than the cash it needed to pay its bills.

vonage.gif

Financial Data for Vonage, collected from Google's finance section:

(Data Reported in Millions of Dollars) Ending 2007 Ending 2006 Ending2005 Ending 2004 Ending 2003
Current Assets 231.68 569.77 303.53 116.43 17.64
Total Assets 462.30 757.52 446.56 136.49 28.31
Total Current Liabilities 448.60 259.93 135.40 47.16 12.82
Total Equity -75.13 183.20 19.94 85.45 14.27
Total Revenue 828.23 607.40 269.20 79.71 18.72
Total Operating Expense 1,090.01 947.88 533.73 151.25 46.78
Operating Income -261.78 -340.49 -264.54 -71.55 -28.06
Income after Taxes -267.43 -338.57 -261.33 -69.92 -29.97

bankrupt.gif

As you can also see from the data, Vonage's revenue continues to grow year after year. Perhaps they are raising prices, expanding their business region, or simply obtaining more household subscribers to their products. You may assume from this statement, that Vonage is a profitable, growing company with a bright future ahead of itself. However, as revenues grow, so does their operating expenses and other obligations that they hold. Vonage seemed to be doing fairly well until the end of 2006, when liabilities took a big jump, and current assets fell dramatically. If you look at the operating margin (operating income/revenue) you'll see that it is improving, but Vonage has never really been profitable. Drop in current assets probably means Vonage is burning through cash. Their equity at the end of 2007 illustrates Vonage's overpowering liabilities in comparison to their assets. If this trend continues, the future of Vonage does not look so appealing.

Another way to look at a company's stability, is to look at its "quick ratio." This is a measure of its current assets in comparison to its current liabities. Vonage's quick ratio each year from 2003 to 2007 respectively are: 1.38, 2.47, 2.24, 2.19, 0.52. Anything above 1.0 is a fairly stable company, since this means all of their current can be liquidated into paying off current liabilities. When the ratio drops below 1.0, company employees, investing prospects, and especially shareholders become worried. As you can see Vonage's quick ratio dropped tremendously from 2.19 in 2006 to 0.52 at the year ending 2007.

On May 26th, 2006, Vonage, was trading at $13.02, is currently trading as of today at $1.81 a share (April 11th, 2008). An analysis of this can be seen here or below.

Financial Data for Comcast, collected from Google's finance section:

(Data Reported in Millions of Dollars) Ending 2007 Ending 2006 Ending2005 Ending 2004 Ending 2003
Current Assets 3,667.00 5,202.00 2,848.00 3,535.00 5,403.00
Total Assets 113,417.00 110,405.00 103,400.00 104,694.00 109,159.00
Total Current Liabilities 7,952.00 7,191.00 6,524.00 8,635.00 9,654.00
Total Equity 41,340.00 41,167.00 40,219.00 41,422.00 41,662.00
Total Revenue 30,895.00 24,966.00 21,075.00 19,221.00 18,348.00
Total Operating Expense 25,317.00 20,347.00 17,554.00 16,392.00 16,466.00
Operating Income 5,578.00 4,619.00 3,521.00 2,829.00 1,882.00
Income after Taxes 2,549.00 2,247.00 847.00 942.00 -121.00

Although the Comcast numbers may look staggering in comparison to Vonage's, you have to take into consideration that the financial data includes all of Comcast's businesses, not just their voip business (Vonage's sole business is VoIP services). After all, Comcast did take AT&T Broadband Internet business under it's wing. Still, you can see why Vonage took a seat behind Comcast in the recent months, as Comcast is currently considered the number one voip provider, with 4.9 million subscribers.

AT&T
att_logo.JPG

Financial Data for AT&T, collected from Google's finance section:

(Data Reported in Millions of Dollars) Ending 2007 Ending 2006 Ending2005 Ending 2004 Ending 2003
Current Assets 24,686.00 25,553.00 14,654.00 9,962.00 14,023.00
Total Assets 275,644.00 270,634.00 145,632.00 110,265.00 100,233.00
Total Current Liabilities 39,274.00 40,482.00 25,418.00 20,355.00 14,300.00
Total Equity 115,367.00 115,540.00 54,690.00 40,504.00 38,248.00
Total Revenue 118,928.00 63,055.00 43,764.00 40,733.00 40,498.00
Total Operating Expense 98,524.00 52,767.00 37,596.00 34,832.00 34,214.00
Operating Income 20,404.00 10,288.00 6,168.00 5,901.00 6,284.00
Income after Taxes 11,951.00 7,356.00 4,786.00 4,979.00 5,859.00
  • The following data was retrieved from the 2007 AT&T Annual Report
(Data Reported in Millions of Dollars) Ending 2007 Ending 2006 Ending2005 Percent Change '07 Vs '06 Percent Change '06 Vs. '05
Operating Revenues $118,928 $63,055 $43,764 88.6% 44.1%
VOIP Revenues $40,798 $43,505 $46,849 -6.2% -7.1%

Although AT&T stock prices are rising, voip sales are continuing to decline.

According to AT&T's 2007 Annual Report, "..voice revenue decline is consistent with trends and is due to access line declines reflecting competition and substitution of alternative technologies, pricing pressures due to competition, anticipated shifts of traffic by major consolidated carriers to their own networks, and a continuing decline in the number of ATTC's mass market customers, which represent consumer and small business." In other words, AT&T is basically saying that they are no longer able to screw customers over with higher monthly phone service fees in order to keep up with the competition, which in turn is causing them to lose money. Also as a result, they are continuing to lose customer networks from home users as well as small businesses.

Skype
skype1.png
Financial Data for Skype, collected from Google's Finance Section :

(Data Reported in Millions of Dollars) Ending 2007 Ending 2006 Ending2005 Ending 2004 Ending 2003
Current Assets 7,122.51 4,970.59 3,183.24 2,911.15 2,145.88
Total Assets 15,366.04 13,494.01 11,788.99 7,991.05 5,820.13
Total Current Liabilities 3,099.58 2,518.39 1,484.93 1,084.87 647.28
Total Equity 11,704,60 10,904.63 10,047.98 6,728.34 4,896.24
Total Revenue 7,059.15 5,969.74 4,552.40 3,271.31 2,165.10
Total Operating Expense 7,095.15 4,546.78 3,110.69 2,212.07 1,537.09
Operating Income 613.18 1,422.96 1,441.71 1,059.24 628.01
Income after Taxes 348.25 1,125.64 1,082.04 784.35 454.76
Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License