Aug. 9 (Bloomberg) -- Vonage Holdings Corp., the Internet phone company whose stock has fallen 65 percent this year, recorded a narrower second-quarter loss than analysts estimated after cutting jobs and advertising spending.

The shares climbed after Vonage said the net loss shrank to $33.6 million, or 22 cents a share, from $74.1 million, or $1.16, a year earlier. Sales rose 43 percent to $205.9 million, Holmdel, New Jersey-based Vonage said today in a statement.

Vonage accelerated cost cuts after losing a patent suit to Verizon Communications Inc., which may prevent Vonage from using its rival's technology. The company said today that it started using systems that replace two patents in dispute and finished a workaround for the third. Vonage had earlier said that a failure to find workarounds might force it into bankruptcy.

``The company has made some progress reducing its expenses and its cash burn, which improve the financial situation somewhat,'' Stanford Group Co. analyst Clay Moran said in an interview today. ``The potential for them to reach profitability seems enhanced.'' Moran, based in Boca Raton, Florida, rates the shares ``hold'' and doesn't own them.

Shares of Vonage rose 22 cents, or 10 percent, to $2.42 at 4:02 p.m. in New York Stock Exchange composite trading. The stock has fallen 86 percent since Vonage's initial public offering in May 2006.

Analysts anticipated sales of $208.5 million and a net loss of 30 cents a share, according to the average of those surveyed by Bloomberg. Excluding costs to fire workers and royalties paid to Verizon, the second-biggest U.S. phone company, Vonage's loss was 12 cents, which beat the 26-cent Bloomberg estimate.

``I believe we've turned a corner on one of the most difficult periods in Vonage's history,'' Chairman Jeffrey Citron said yesterday in an interview.

Subscriber Gains

Vonage added about 57,000 new subscribers, less than the 150,000 predicted by Stanford Group's Moran. Fewer ads and ``negative press'' surrounding the patent case may have kept customers away, said Citron, 36. The gain also missed the 135,000 estimate of Soleil Securities Corp. analyst Todd Rethemeier and the 110,000 projection from UBS AG's John Hodulik. Vonage added 256,000 net new subscribers a year ago.

``Growth has really slowed down in a big way,'' Moran said. ``They're at a disadvantage to cable companies and that's not changing, and they've also yet to prove that they can appeal to the mass market.''

The company now has a total of 2.45 million lines. Comcast Corp., a rival for Internet-phone subscribers and the largest U.S. cable company, added about 671,000 digital-voice clients, for a total of more than 3 million, over same period.

No Forecasts

Vonage won't give forecasts for the year, Citron said. The executive, who founded the company, also is serving as interim chief executive officer after Michael Snyder left in April.

``We've heard promises of impending improvement for several quarters now, but each quarter they seem to push out recovery a little more,'' Buckingham Research Group Qaisar Hasan said in an interview today. ``It really begs the question, does this company have the liquidity to survive?'' New York-based Hasan rates the shares ``underperform'' and doesn't own them.

Vonage completed plans announced in April to cut 10 percent of the workforce, or about 200 jobs. The company also aims to reduce its advertising budget by $110 million for the year.

In March, Vonage lost a court ruling to New York-based Verizon, which sued Vonage for using its patented technology without permission. Vonage, the largest independent Internet phone service in the U.S., is appealing the decision, which would force it to pay a 5.5 percent royalty from the sales of phone lines and $58 million in damages to Verizon.

Vonage also was sued by Sprint Nextel Corp. for infringement of seven patents. That case is set to go to trial on Sept. 4. In a ruling yesterday, U.S. District Court of Kansas Judge John Lungstrum refused to dismiss some of the claims against Vonage.

(The company held a conference call at 10 a.m. New York time. To access a replay of the call, go to http://ir.vonage.com.)

To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net

Last Updated: August 9, 2007 16:13 EDT