Net2Phone beats estimates, revamps deals

The Net phone service provider beats Wall Street expectations and moves up its profitability projections, adding that it has revised partnerships that were proving too expensive.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
2 min read
Internet phone service provider Net2Phone beat Wall Street expectations and moved up its profitability projections Monday, while saying it has revised partnerships that were proving too expensive.

The company reported a loss of 27 cents per share excluding one-time charges, 2 cents better than a consensus estimate of a 29 cents-per-share loss projected by analysts polled by First Call.

Those figures don't reflect a $31 million charge the company is taking to restructure its deal with Yahoo. The terms of that deal, among others, turned out to be a drag on the Net phone service's bottom line, executives said. The size of the charge was in large part related to the decline in Yahoo stock owned by Net2Phone.

"We took a significant step to reduce our costs by successfully renegotiating and restructuring agreements with key business partners, in order to reduce our cost of subsiding traffic," Chief Executive Howie Balter said in a statement.

Under the revised Yahoo deal, Net2Phone will no longer pay the portal to be the exclusive Net phone provider on Yahoo. Instead, Yahoo will purchase Net2Phone's technology for use in several areas, including the Yahoo Messenger software.

As a result of this and other revamped deals, the company said it would be able to reach profitability by July 2002, two quarters ahead of previous estimates.

The company posted revenue of $34 million for the fiscal quarter ending January 31, for a net loss of $15.9 million excluding one-time charges.

Net2Phone's results are encouraging in a market increasingly littered with the shells of discarded business models. The company had already told investors that it was renegotiating the terms of several deals, including one with Microsoft that ultimately capped the amount of free Net phone time given to MSN Messenger users.

Like other Net phone companies, Net2Phone has been struggling to turn a business identified with free phone calls into a profit-making venture. As a result, it has been selling its technology increasingly to corporate customers and resellers that work in the corporate environment.

Its flagship consumer product is still gaining use, however. The company said it had more than 2.8 million users by the end of January, up 387 percent from the year before.