On April 29, 2014, the price of Gogo (NASDAQ:GOGO) plunged in response to news that AT&T and Honeywell were prepared to compete. The news slowly dragged the stock down until May 9, when it hit 11.77--an almost 56% drop since its April 23 high. The stock price is now slowly readjusting and exceeded 17.50 on May 27. Some downward pressure on May 28 shows that the stock is attempting to find its floor.
The bearish market behavior may have been an overreaction to the AT&T announcement. The mere size of AT&T and Honeywell are unlikely to dictate the outcome of this impending competition. Gogo has market penetration and a user base, and has the advantage of being the first in-flight Internet provider to be widely adopted. Gogo also offers in-flight entertainment with streaming movies that are defining an entirely separate market for this service provider. The streaming content service of Gogo provides pay-per-view entertainment without requiring purchase of internet service, broadening its market to every casual vacationer with a tablet or smartphone.
Most importantly, Gogo is the owner of a range of patents that cover technology relating to several aspects of their services. For example, U.S. Patent No. 8,185,040 is directed to a method for preventing the hosting of IP-based voice communications--in other words, preventing users from making web-based phone calls or video conferences and thus using too much bandwidth. Gogo's U.S. Patent No. 8,078,163 is directed to a system and method for providing in-flight media content and entertainment. Google Patents currently shows that Gogo is assigned 19 issued United States utility patents, with many more pending. While AT&T may not be prevented from entering into the market due to this intellectual property, Gogo's portfolio is wide-reaching and documents their early entry into the market and solutions to problems that are unique to the in-flight environment. This portfolio, in addition to Gogo's current market penetration, also makes the company attractive for future partnerships or possible mergers with other telecommunications companies.
This article was coauthored by James Bosco, Jr.
Disclosure: I am long GOGO.