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

On Monday, Gogo (NASDAQ: GOGO  ) 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 (NYSE: T  ) is preparing to offer its own rival in-flight service, the question Gogo faces is whether its ability thus far to work with Boeing (NYSE: BA  ) 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

Analyst EPS Estimate

($0.25)

Year-Ago EPS

($0.39)*

Revenue Estimate

$94.02 million

Change From Year-Ago Revenue

33%

Earnings Beats in Past 4 Quarters

2**

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.

The biggest thing to come out of Silicon Valley in years
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for less than you'd expect. Click here to get the full story in this eye-opening new report.

Click here to add Gogo to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2950434, ~/Articles/ArticleHandler.aspx, 11/27/2014 11:26:09 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement