New Factor Can Be Lost As Gol Shows; Azul Rising

Investor's Business Daily

A new factor can drive a stock.

Yet, the same company can take a new step in the wrong direction and lose momentum.

Gol Intelligent Airlines (GOL), a Brazilian airline, began in 2001 with six planes serving five cities in Brazil. In 2004, the company launched its initial public offering in the U.S.

Brazil was a wide-open market for airlines, and Gol had the perfect business model for capturing market share. A low-fare airline, the company not only took market share from rival carriers, but its low prices let it take business from bus lines. A late-night flight cost about as much as a bus ticket.

In 2005, less than 10% of the people in Latin America used airlines. The potential for Gol was huge.

From 2001 to 2007, Gol's market share grew from 4.7% to 45%.

Annual earnings grew 148%, 58% and 80% in 2004-06. Revenue jumped 46%, 63% and 57%.

Naturally, the stock soared. 1Then, Gol's management did something strange.

On April 9, 2007, 2 Gol acquired VRG, which was a company formed from the assets of a bankrupt Varig airline.

The innovative discount airliner had acquired an old laggard.

In the 20-F report a year later, Gol reported that, "The launch and integration of Varig's operations, however, has in 2007 and may in the near term ... result in lower profitability.

Pretax margin fell to 4.3% in 2007, down from 21.2% the previous year. As Gol struggled, market share dwindled. From 42.5% in 2008, market share slid to 34.6% in 2011.

That Gol has lost market share isn't nearly as interesting to growth investors as the fact that someone else grabbed it.

Privately held Azul Brazilian Airlines was launched in December 2008. 3 Starting with zero market share, the company grew to 9.6% market share by 2011.

Azul, which means blue in Portuguese, was started by David Neeleman, who was born in Brazil but raised in the U.S.

The founder of JetBlue, Neeleman was forced out of his own company by the board in 2007.

Growth investors have only one question: Does Azul plan an IPO

In May, Neeleman said Azul would eventually go public, but that the time was not yet right.

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