Shares of airline Wi-Fi operator Gogo Inc. (NASDAQ:GOGO) have been on a tear of recent. The company had an awesome week with investors cheering for new FAA regulations. Gogo also got a positive mention on CNBC after a demonstration of its new in-flight Text & Talk service. Despite a 17% share rise from its IPO, Gogo remains undervalued and is changing the future of connectivity in the skies.
Back in June, I recommended buying shares of Gogo during its IPO at $17 a share. My top reasons in the article were:
· Market Position
· International Expansion
· Gogo Vision
An article on Cnet discusses Gogo's new Text & Talk service. In my eyes, the service is a game changer if it gets the proper approval. The service allows passengers to make phone calls and send text messages while flying high above the ground. Users of Text & Talk download an application that allows them to roam the in-flight network. This gets passengers to work around current FAA rules that make them stay in airplane mode and have no bars of service on the phones. From the Cnet article, "By utilizing Gogo's air-to-ground connectivity, calls and texts back on Earth are now routed through the aircraft's wireless network rather than in-flight cell towers, or "picocells."
Text & Talk is available for iPhones and Android phones. The service is expected to release in the first half of 2014. Gogo has not announced pricing of the service at this time. With availability on over 6000 aircraft, including the business jets where this service will be popular, Gogo has a chance to really take this concept by storm. The company will likely be able to charge anywhere from $5 to $20 for this service and dramatically increase its revenue per user and revenue per flight.
These two segments have already increased nicely over the last three fiscal years. I highlighted this in my IPO preview. To review, here are the averages:
Avg. Rev per passenger
Avg. Rev per session
One potential game changer from this service is Gogo's ability to package its services to airlines. While Gogo currently has strong relationships with Delta (NYSE:DAL), American Airlines (AAMRQ), US Airways (LCC), and Alaska Airlines (NYSE:ALK), it is missing out on other large players. If the Text & Talk service proves to be in demand, airlines will have to add it to keep up with competitors. Gogo may be able to force airlines into using their wi-fi offering to obtain the rights to Text & Talk and therefore increasing revenue per flight.
The other big reason shares of Gogo were up recently was the FAA ruling on electronic devices. The FAA has approved the use of electronic devices like tablets, e-readers, and iPods during all phases of flight. Previously, passengers had to wait until they were high enough in the air. As the market leader in wi-fi capabilities on flights, Gogo stands as the clear winner in this decision. Several airlines are already working on new regulations and rules to speed up the rollout of this service. Gogo has a strong partnership with Delta and should see immediate benefits when the service goes live.
Another area I highlighted as a key investment reason for Gogo shares was international expansion. The company had bought spectrum in Canada and was working on expanding its presence aboard international flights. On October 28th, Gogo announced a new partnership with Japan Airlines. The deal marks the first expansion to a foreign airline company. Gogo will see its services offered aboard 77 planes in Japan. The service is expected to launch in the Summer of 2014 and should nicely boost international revenue, which currently is minimal.
Along with all of the new entries by Gogo, the company is also expanding its wi-fi service to improve speeds in the air. When Gogo launched five years ago it offered download speeds of 3.1 mbps. The company has expanded that to speeds of 9.8 mbps. Now, with Gogo's latest offering Gogo GTO, speeds are expected to reach up to 60 mbps. Virgin America will be first partner to launch this new service in the second half of 2014.
Shares of Gogo Inc. closed at $18.75 on Friday. Shares have traded as high as $19.80 over the last six months since going public. Investors who took my advice and bought in at the IPO of $17 have seen a minimal gain. I believe shares are not done going up and 2014 should be a focus year for the company.
Analysts on Yahoo Finance see the company posting a loss of $1.34 per share in the current fiscal year. That loss is expected to decrease to $0.79 per share in fiscal 2014. Revenue is expected to increase to $311.2 million in fiscal 2013, which would represent a gain of 33%. In fiscal 2014, revenue is also expected to increase 33% and hit $413.9 million. I think the fiscal 2014 number will prove conservative with all of these new services and offerings from Gogo. Get shares of this airline leader under $20 while you still can. With this company, the sky really is the limit.