Gogo Inc. Earnings: Will AT&T Competition Crush the Upstart?

On Monday, Gogo (GOGO -1.38%) will release its quarterly report and, until a few weeks ago, investors were unreservedly optimistic about the prospects for the provider of Wi-Fi service on aircraft. But now that AT&T (T -1.28%) is preparing to offer its own rival in-flight service, the question Gogo faces is whether its ability thus far to work with Boeing (BA -2.55%) and other aircraft manufacturers to get its equipment working in flight, will give it a lasting competitive advantage.

Travelers know that the friendly skies were the last bastion of disconnected existence, with strictures against transmitting devices preventing communication with ground-based wireless networks. Gogo has filled what many travelers see as a desperate need by giving them in-flight access to email, news, and other things that people on the ground take for granted. Gogo relied on what it thought were substantial barriers to entry; now, it has to deal with AT&T and its potential impact on the in-flight Internet market. Let's take an early look at what's been happening with Gogo during the past quarter, and what we're likely to see in its report.

Source: Gogo.

Stats on Gogo

Source: Yahoo! Finance. * Pro forma after adjusting for pre-IPO share counts. ** Out of 3 quarters since going public.

Can Gogo earnings become profitable before AT&T arrives?
Analysts have had mixed views on Gogo earnings in recent months, widening their first-quarter and full-year 2014 loss estimates, but narrowing their expectations of 2015 losses. The stock, though, has gotten hammered, plunging 37% since early February.

Gogo's fourth-quarter report was relatively strong, with revenue soaring to $92.6 million as the company installed its equipment in 69 commercial airliners and 248 business jets. In order to finance its growth, though, Gogo takes its earnings from its profitable business-jet installations, and subsidizes its commercial division. But the big concern came from full-year revenue guidance, which suggested a substantial deceleration in growth that sent Gogo shares falling after the announcement.

Source: Boeing.

A key part of Gogo's future is its relationship with Boeing and the airlines that buy its planes. In April, Gogo stock jumped as the company said that it had reached a technical services agreement with Boeing. If Boeing looks favorably on Gogo's technology, then it could decide to make provisions for it in new-aircraft production, eliminating the need for retrofitting, and potentially giving it a first-mover advantage that could repel competition.

Yet, the news of AT&T entering the market crushed Gogo shares, with AT&T announcing that it would work with an avionics partner to provide its 4G LTE service to airline passengers by the end of next year. With such a dramatically larger pool of financial resources to use, AT&T has the ability to outspend Gogo in order to offer its rival service. But Gogo still has time to defend itself, as it has contracts in place with major airlines, and also owns key ground-to-air spectrum assets that AT&T will have to work hard in order to duplicate.

In the Gogo earnings report, watch to see how management reacts to the imminent entrance of AT&T into the field. If it can develop closer ties with Boeing, then Gogo might well be able to stave off its larger rival -- or persuade it to buy out Gogo rather than enduring a competitive fight.

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