Shares of Gogo (GOGO 0.94%) closed 13.1% lower on Friday, having traded as much as 14% lower earlier in the day. The provider of in-flight broadband connectivity services reported strong first-quarter results with a mixed bag of full-year guidance, and investors decided to focus on the weak spots in that varied quilt of company news.
In the first quarter, Gogo's top-line sales rose 40% year over year to land at $232 million. The average analyst would have settled for $221 million. On the bottom line, a net loss of $0.34 per share was far smaller than the $0.52 loss per share that was reported in the year-ago quarter, and analysts had expected a $0.58 loss per share.
Management's full-year revenue guidance centered on $900 million, ahead of the Street's current $888 million consensus. But they also indicated that their earlier EBITDA profit target range of $75 to $100 million would be unreachable. That was enough to trigger a drastic sell-off of Gogo shares today.
The lowered EBITDA target is based on increased operating costs and lost sales, both related to reliability challenges around the next-generation 2Ku network systems. The antennas turned out to be sensitive to the de-icing fluid many airlines use for keeping their planes ice-free in the winter, which led to lower availability of high-speed internet services. The company has now worked out a solution but will need time to implement it, then get its clients to restart their stalled marketing programs for fast in-flight internet services.
Based on the timing of these fixes and of upcoming 2Ku installations, CFO Barry Rowan expects adjusted EBITDA profits to bottom out in the second quarter and rebound in the second half of the fiscal year like they did in 2017.
All told, Gogo shares have lost 30% of their value over the last 52 weeks. Execution problems overshadow a promising business model. I expect Gogo to bounce back eventually, but the stock could also fall further before starting that rebound.