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Why Gogo Stock Skyrocketed Today

By Joe Tenebruso – Sep 28, 2021 at 4:24PM

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5G-fueled gains could drive the company's cash flow sharply higher.

What happened

Shares of Gogo (GOGO -0.35%) soared 37.6% on Tuesday after the provider of broadband connectivity services for the aviation market boosted its long-term financial forecast.  

So what

The air travel industry is recovering from its coronavirus-related plunge -- and Gogo is poised to benefit. Management now sees revenue rising by 15% annually from 2020 to 2025. That's up from a previous revenue expansion estimate of at least 10%.

"Growth in private air travel continues to expand, fueling what we expect will be sustained growth in demand for inflight connectivity as customers seek to replicate their home and office connectivity in the air," CEO Oakleigh Thorne said in a press release.

A private jet is flying over clouds.

Image source: Getty Images.

Gogo, in turn, is enjoying record equipment sales. And once installed, this equipment is helping to produce rising levels of high-margin, recurring service revenue for the company.

Together, these factors are expected to drive Gogo's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin to 45% by 2025, up from 40% this year. Management had previously guided for an adjusted EBITDA margin of 35% to 40%.

Better still, Gogo ramped up its free cash flow projections from over $100 million annually by 2023 to roughly $125 million -- and as much as $200 million by 2025.

Now what

Gogo anticipates it will finish the construction of its 5G network by next year. Demand for the fifth-generation wireless technology and its blazingly fast download speeds is likely to be high among Gogo's business-oriented customers. And once completed, Gogo should be able to scale back on its capital expenditures. This combination of rising sales and lower costs should help fuel sizable increases in the company's cash flow production beginning in 2023.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Gogo Stock Quote
$15.68 (-0.35%) $0.06

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