Market Overview

Gogo Trades Lower As Analysts Dissect Future Prospects

Gogo (NASDAQ: GOGO) on Monday reported its second quarter results.

The company lost $0.22 per share, a penny better than analysts expected while revenue of $99.50 million came in $0.1 million better than expected. Net loss for the quarter improved to $18.7 million from $72.6 million a year ago.

“We had another great quarter and reported strong growth in revenue and profitability for both CA-NA and BA segments,” said Gogo's President and CEO Michael Small in a statement. “Furthermore, we made solid progress in operationalizing our international business.”

However, Gogo announced that it now expects its full-year EBITDA to be toward the lower end of its prior $8 million to $18 million range due to higher spending to obtain certain certificates for its international service.

Shares of Gogo traded lower by nearly five percent on Monday and another five percent by Tuesday afternoon as analysts offered a mixed analysis.

Morgan Stanley: Staying on the sidelines

Simon Flannery of Morgan Stanley reiterated an Underweight rating.

In a note to clients on Tuesday, the analyst claimed that Gogo's second quarter results were in-line with expectations, but management's guidance towards the low end of its EBITDA expectations essentially implies zero EBITDA for the second half of 2014. The analyst also noted that Gogo burned through approximately $23 million in cash during the quarter.

Flannery said that Gogo's management provided “limited visibility into the future” during its post earnings conference call. The analyst noted that Gogo does not have a final agreement with Air Canada where the company is expected to equip 29 aircrafts in 2014 or Aeromexico which is expected to be live and operational in the second half of 2014.

Bottom line, Flannery is “still waiting for final agreements and STCs, and looking for additional international contracts.”

UBS: Growing pains continue

John Hodulik of UBS believes that Gogo is going through a phase of “growing pains” as the company's investments in its international segment will hurt the bottom line.

Despite near-term “growing pains” Hodulik noted that Gogo's international operation looks promising with 19 planes flying at the end of the second quarter with an estimated 50 to 100 planes operational by the end of 2014. International backlog is more than 300 planes, the vast majority of which should be flying by the end of 2015.

Hodulik lowered his full-year revenue outlook to $412.9 million from a previous $415.6 million while his full-year EBITDA estimate is now lowered to $10.2 million from $15.5 million. Accordingly, the analyst lowered his full year 2014 EPS estimate to a loss of $0.99 from a previous loss estimate of a $0.91.

Looking forward, Gogo Is now expected to lose $0.39 per share in full year 2015 and will earn a profit of $0.31 per share in 2016.

Shares are Buy rated with a $23 price target.

Wells Fargo: Results as expected, no new catalysts

Andrew Spinola of Wells Fargo maintained a Market Perform rating. At the same time, the analyst lowered his price target to a range of $16 to $17 from a previous $18 to $19.

“Gogo added just two net new aircraft in the Consumer-North American business in Q2, which is more to do with upgrades over installs, but it emphasizes the complexities of the airline business that will extend the time to scale Gogo's business,” the analyst warned investors in a note on Tuesday.

Spinola notes that Gogo does have a competitive position and the possibility of adding new international awards in 2015 is a reality. However, the analyst believes a Market Perform rating is appropriate as the competitive pressures that shape the aviation broadband industry is still unclear.

The analyst also noted that the time frame for Gogo to demonstrate a long-term attractive business model is in “years not quarters.”

Latest Ratings for GOGO

DateFirmActionFromTo
Jun 2014MacquarieInitiates Coverage onNeutral
Jun 2014Wells FargoInitiates Coverage onMarket Perform
May 2014UBSUpgradesNeutralBuy

View More Analyst Ratings for GOGO
View the Latest Analyst Ratings

Posted-In: Aeromexico Air Canada Andrew SpinolaAnalyst Color Earnings Guidance Price Target Analyst Ratings

 

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