Gogo Lock Up Expiration Provides Shorting Opportunity

Dec. 6.13 | About: Gogo (GOGO)

On December 17, the 180-day lockup period following the June 20 IPO of in-flight Wi-Fi connectivity provider GOGO Inc. (NASDAQ:GOGO) will come to an end, allowing the majority of the firm's outstanding shares, largely held by private equity firms, to be sold. The unlocking will also permit company executives and directors to begins selling their shares.

The sudden increase in supply of GOGO shares will likely lead to at least a temporary dip in the price of the shares, and may present a short opportunity for aggressive investors. GOGO has performed extremely well in the past month, rising from $18.59 per share on November 5 to $32.89 per share on December 5, at least in part as a result of its STC to install its Ku-satellite systems on Boeing 747-400 aircraft.

Share Unlocking

The December 17 lockup expiration will apply to the 73,918,818 shares of GOGO not offered in the IPO, which consisted of 11,000,000 shares. The soon-to-be-unlocked shares are primarily owned by entities associated with private equity firm Ripplewood Holdings (27,639,628 shares) and billionaire Oakleigh Thorne (24,643,183 shares). AC Partners LLLP also is a significant holder with over four million shares. Ripplewood Holdings and AC Partners are both likely to sell at least some of their shares over time in the interest of raising capital. These firms have big incentives to return the capital at a profit over a reasonable period of time to their limited partners.

GOGO directors and executives will also be able to sell their shares; though they are not under any particular pressure to sell, many may choose to sell to diversify their portfolios, as they have not had the opportunity to do so during the past six months.

Business Summary

GOGO offers in-flight internet connectivity along with digital entertainment and portal-based services to commercial and business aviation firms. The firm has the largest number of online aircraft in service. The firm provides its connectivity service to passengers on aircraft operated by its North American airline partners, including Delta Air Lines (NYSE:DAL), American Airlines, US Airways (LCC) and Alaska Airlines (NYSE:ALK). The firm expects to have over 2,000 commercial aircraft online by the end of 2013, representing approximately four out of five internet-enabled North American commercial aircraft.

The firm has also initiated efforts to spread its product to an international audience. In March of 2013, the firm entered an agreement with Delta Air Lines to provide satellite connectivity services on its international fleet, consisting of 170 aircraft. The firm's business aviation business has placed Iridium satellite communications systems in over 5,000 aircraft and GOGO Biz systems in 1,607 aircraft.

Recent Results and Competition

It should be noted that while GOGO's consolidated revenue increased from $160.2 million in 2011 to $233.5 million in 2012, over the same period the firm's net income decreased from $23.6 million to a net loss of $32.7 million. The firm also faces competition from others looking to offer similar services, especially airlines that are attempting to create such services in-house.

Conclusion

The unlocking of all of these shares of GOGO may put downward pressure on the stock over the next few weeks creating a shorting opportunity for aggressive investors.

Disclosure: I am short GOGO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.