Gogo: Bullish On Solid Financials, 5G-Network Rollout

Gogo (GOGO) provides air-to-ground (ATG) broadband wireless internet for the business aviation industry. The company recently released its Q4-2021 report, showing record revenue numbers, and updated its guidance for 2022.

Gogo’s stock price has increased substantially over the last year, and I think it should continue this trend. In 2022, the company will introduce its 5G broadband ATG network in the U.S.

I rate the company as bullish, although the markets are currently very volatile.

Business Operations

Gogo provides broadband internet connectivity to passengers on business flights, including streaming video, video conference, VOIP calls, and inflight applications for the pilot and passengers. It also offers an inflight on-demand streaming video and entertainment service.

Its equipment is installed as original equipment on new aircraft and as aftermarket parts during maintenance. The company makes most of its revenue through subscriptions to its broadband services.

During the second half of 2022, the company will release its 5G network to business aviation aircraft, commercial regional jets, and smaller mainline jets within the U.S. and Canada. The high-speed broadband network is the main catalyst for the company’s revenue growth through 2022.

Gogo reports that business aviation charters and the overall business aviation industry grew during the pandemic and will continue to grow. Private jets provided a certain amount of safety to the business class during the pandemic.

Gogo does not have any immediate competition within the business aviation industry. Commercial airliners use satellite-based internet, and this type of service is not priced for business aviation and smaller aircraft.

Gogo has enjoyed the leading market position as the number one provider of broadband internet for business class aviation. Business-class aviation uses small to medium-sized aircraft, although Gogo is capable of outfitting jumbo liners, and its services are used by chartered business flights of many different sizes.

Q4-2021 Financial Results

Gogo reported record revenue of $92.3 million, representing 19% a year-over-year increase and a 6% quarter-over-quarter increase. The revenue breaks down into service revenue ($69.3 million) and equipment revenue ($23 million). Gogo attributes this growth to higher demand in business aviation and a solid performance from its AVANCE platform.

Aircraft equipped with Gogo’sGogo’s ATG system came to 6,400 during the quarter, representing an 11% increase year-over-year. Aircraft using the newer AVANCE units amounted to 2,504, representing a 46% increase year-over-year. The company’s services were provided on 416,000 flights during Q4, representing a record number and a post-pandemic normalization.

The company reported a net income of $209.1 million, although a tax benefit of $187.7 million made up part of the number. The company’s huge beat on EPS (+$1.52) was also attributed to the tax benefit. Gogo reported an adjusted EBITDA of $39.6 million and free cash flow of $25.7 million. The company currently has $145.9 million in cash and equivalents.

The company expects revenue growth to continue throughout 2022. Gogo predicts Fiscal Year 2022 revenues to be between $380-$395 million. The company foresees 15% revenue growth per year through 2026.

Stock Price Performance

Gogo’s stock price has been on a sustained uptrend, with a one-year increase of 53%. Its six-month performance is 36%. The stock price is currently trading above its 20/50/200 day moving averages.

GOGO stock is a daily mover and has high trading momentum. It is currently finding upward resistance at the $18-$19 price channel. It is possible for the price to break through the upper boundaries over the next 12 months, although high market volatility may continue to be an issue.

Wall Street’s Take

Turning to Wall Street, Gogo has a Moderate Buy rating based on two Buys and two Hold ratings assigned in the past three months. The average Gogo price target of $19.67 implies 14.6% upside potential.

Conclusion

Gogo’s ATG broadband network provides an essential service to the business aviation industry. The company reported record revenues and sees continued growth in business aviation post-pandemic. Gogo is in a unique position and currently enjoys the number one spot for broadband service for business aviation.

The company will roll out its 5G network during the second half of 2022. Gogo expects revenue to continue to grow by about 15% per year with the new network in place. Although markets are currently volatile, I rate Gogo as bullish.

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