Gogo Inc. Stock Profile


There have been a few travel related posts on the site lately and this week is no exception. I am profiling Gogo Inc., which is a US based in flight connectivity and services company. To end consumer airline passengers, in flight aircraft connectivity means faster and more reliable internet while 30,000 feet in the air. This is a fairly new concept for most of us that fly commercially. It wasn’t that long ago that the notion of flying without internet connectivity was met with a sense of relief OR a sense of horror. I would put myself in the former category - it is nice to escape the smartphone and enjoy a few uninterrupted hours reading or watching a program. Nonetheless, we all knew internet connectivity while airborne was only a matter of time. Consumers drove demand as it has become unthinkable to be without internet connectivity everywhere you go or travel. It is interesting to recall a not so distant past when the in-flight warnings about turning your phone off scared even the rebellious among us. Would connecting to the internet while airborne really interrupt important signals and crash the plane?! The future is now here and companies like Gogo are attempting to recreate the experience of using the internet on the ground, in the sky.  

Courtesy of gogoair.com

Courtesy of gogoair.com

·     As stated many times on this site, I, nor ZSM Creative Inc. operating as The Capital Pink, are financial advisors and have no financial accreditations. I am applying some basic evaluation tools to this stock along with some commentary, but this should only serve as a starter for your further research. The information below is only current to the day this post was written which may or may not be the same day as this post was published so please update the ratios and numbers to the current day before relying on them as they may have significantly changed (see How Do I Evaluate a Stock? (Part One) for information on where to find the ratios and numbers online). Please read my Legal Disclaimer.  Also, I do not own Gogo Inc. stock and am not affiliated with them in any manner.    

What is Gogo Inc. (Gogo)?

Gogo has an interesting history. It started in 1991 with a napkin sketch and idea to bring the internet to the sky. This in and of itself is impressive as I think most of the world, including me, was not aware of the internet in 1991. In 1997, it began providing phone connections for business airline travellers. Fast forward to 2006 when it was allotted the only broadband frequency for communication between aircraft and ground-based cell networks. In 2008, its connection launched on airlines and it has grown from there. Its technology is now found on many airlines and as at September 2017, wi-fi is now available on every Virgin Atlantic plane to every destination as just one example of its growth. Gogo’s 2Ku network covers more area than competitors and has a faster speed. The speed available up in the sky for connectivity has increased at a rate in keeping with the ways in which consumers are demanding more from their smartphones.

Other points regarding Gogo:

·      80% of the flight minutes by aircraft are only in <20% of the world’s geography – the larger the area covered by the network, the more capacity is wasted. Challenge to balance the coverage issue as spreading it around the globe makes the coverage problem worse. Gogo is able to address this issue through its technology whereby its wide beams of coverage are used for large areas v. spot beams for less travelled routes;

·      A >40% win rate for aircraft installation’s being awarded by the airlines for this service;

·      9 of the top 20 airlines are customers;

·      When awarded an aircraft, Gogo has the higher average awarded airline per account as compared to competitors;

·      Large potential for growth in this area;

·      Vision for the company is ground like connectivity for every device, every flight, everywhere;

·      Has awards for aircraft not yet built whereby the technology is installed from the outset as opposed to a retrofit; and

·      Retrofit installations can be done in 30 hours to reduce downtime of the aircraft – this is key! Airlines cannot afford to have their aircraft out of use for long.

Gogo also has an extensive information package on its website about the Internet of Things which of course would include connected aircraft. Some of the uses of connectivity aside from in light entertainment include: a paperless flight bag for pilots thus eliminating paper manuals, real-time credit card processing for things such as duty-free purchases and connected logbooks which help save flight crew time in filling out all necessary paperwork. This presentation has lots of information for anyone interested in more about the Internet of Things as it relates to airlines. Lots of growth for Gogo in this space as we are clearly at the outset of connectivity in this manner.

What is Gogo’s stock doing?

Gogo is still in the early stages of its growth and is definitely a growth stock as compared to a value stock. It is just starting to get momentum and so the evaluation below must be viewed in that context. The fact it does not have positive earnings impacts many of the ratios below.

As at April 12, 2018, the numbers from our basic stock evaluation tools are as follows:

Share price: $8.94 USD

One share of Gogo would cost you $8.94 USD.  The price over the past 52 weeks has ranged from $$8.02 to $14.76 USD. 

Price to Earnings (P/E): -

Recall this is the stock price divided by the earnings per share. If the P/E is high, you should expect to get some growth for having paid a bit more for the stock however, it could indicate the stock is overvalued. No ratio data is available as Gogo does not have positive earnings at this stage. 

Dividend Yield: --

Dividend paying stocks are something many investors look to buy as they are like an interest rate on your shares. Dividend payouts are discretionary. Dividend yield represents the amount the company pays out in dividends relative to its share price. While a higher dividend yield is usually more desirable, you still need to consider the health of the underlying company before making a generalization either way. No dividend yield ratio was available for Gogo as it is not paying a dividend at this time. 

Earnings per Share (EPS): -2.17 TTM (Trailing Twelve Months)

This figure will tell you a great deal about the growth of the company. It takes what the company earns and divides it by the number of shares outstanding. It is essentially the profit allocated to each share of the company. The bigger the number the better because the more the company earns, the more attractive it is to investors. EPS that is increasing every quarter shows earnings momentum and shows growth potential. Gogo does not have positive earnings, so its EPS figure is negative. On the plus side, the EPS figure has been growing as it was -300.8 in 2009. 

Revenue: $699 Million 

Increasing revenue is a good sign that the company is growing. Gogo’s revenue has been growing in the past five years. It has moved from $234 Million in 2012 to almost $700 Million at present. Recall that revenue does not mean earnings - earnings is the bottom line after everything is deducted. So, while revenue can be positive, earnings may not be after all costs are considered and taken into account.

Return on Equity (ROE): --

ROE tells you what sort of return the company is getting on the shareholders money. Given Gogo’s early position in the market, there is no ROE figure available.  

Market Capitalization: 777.6874 Million

Recall that small cap stocks usually have the most room for growth as opposed to large, established, stable large cap companies and medium fall somewhere in the middle. Gogo is considered a small cap stock poised for growth. 

Net Profit Margin: -24.60%

This ratio tells us what profit is left over after the company pays its expenses for the year. The more money it keeps, the better. High net profit margins mean that a company is good at keeping profit after expenses are paid, which may mean they are adept at keeping their expenses down. It is a good idea to compare these over an industry to see what companies are good at operating and maintaining a high net profit margin. In keeping with the numbers so far, not surprisingly, Gogo has a negative net margin at this time. 

Free Cash Flow per Share: --

Recall that this number is the cash flow through the business divided by the number of shares outstanding. It represents the net cash a company can produce per share and many investors consider this a better indicator of a company’s health than the more popular, earnings per share ratio because it is more difficult to manipulate cash flow numbers than it is earnings numbers. A higher value usually indicates the company is in a healthier position.  

This ratio should be considered along with the EPS figure for a better picture of the company’s health as there should not be a wide discrepancy between the two figures. If there are large variances between those numbers, you may want to consider if there were large, non-recurring one-time items that account for the large variance. It is also wise to look at a company’s cash flow picture in the long term as that should take into account one-time, large capital expenditures (money spent by a company to buy or maintain an asset like land, buildings or equipment, i.e. “fixed assets”) that required large amounts of cash. Gogo has a negative cash flow per share at this point.    

Price to Sales (P/S): 1.01

This ratio compares the total market value of the company with its sales revenues. There is not a great deal of manipulation a company can do with its sales data, so this can be a good indicator of how well the company is doing. Recall that a lower ratio relative to its peers in the industry can indicate a potentially good investment opportunity. Morningstar indicates the index is 1.01 so Gogo is lower than the index.  

Price to Book (P/B): --

This compares the stock price with how much the stock would be worth if the company was liquidated or sold off. It is the value of the stock in comparison to the underlying assets of the company. Thus, a low P/B relative to the stock price suggests you are not paying too much for what would be left over after such a sell off. Morningstar states that the index for P/B is 3.08.

Price to Cash Flow (P/CF): 11.72

Having cash left over after expenses are paid off is crucial to remaining in business so this is a good indicator about the health of a company. Generally lower is better as it could indicate the company is obtaining large cash flows not yet reflected in the stock price. Morningstar indicates the index is 13.69 so Gogo is lower on this metric. 

This completes a basic evaluation of Gogo Inc. As always, there are tons of articles and discussions online about this stock and all stocks, so they are also a good place to look at for further consideration. Gogo certainly seems to be on the right track but as is almost always the case, further research into competitors in this space is required before making a definitive opinion on its future prospects. Unlike more typical consumer goods that most of have some familiarity with, airline connectivity is a difficult area for many of us to get a real sense of what the future holds and who the competition is in this space.  It is still early days for this business, so it would be best to have a good idea of who all the players are in this industry before deciding which one is best poised to be a leader.


 ** Top photo courtesy of Jason Leung on Unsplash