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Gogo Stock Soars 17% on Strong Guidance After Turbulent 2016 Forced Innovation

Benjamin Rains

Gogo Inc. GOGO just released its fourth quarter and full-year financial results, and its stock skyrocketed 18.37% to $10.80 on Monday in early afternoon trading. Gogo beat both earnings and revenue estimates despite posting a $26.9 million fourth quarter loss. This quick upward climb comes as great news for the company since its stock had fallen 11% over the last 12 months.

The Chicago-based company, which first began providing phone service for business flights in 1997, officially went public in June 2013. Gogo stock has slowly declined since Dec. 2013.

But in the wake of a turbulent 2016, Gogo posted a better than expected fourth quarter and announced a positive outlook for the future.

Gogo posted an earnings loss of $0.34 per share, beating the Zacks Consensus Estimate of $0.46. Gogo reported revenue of $160 million, beating our estimate of $153 million and increasing 16% year-over-year.

Gogo reported full-year 2016 revenue of $597 million but lost $1.58 per share overall. Still, the in-flight internet provider expects to have a positive free cash flow in 2019, a full year earlier than it previously projected.

Turbulent 2016

American Airlines Group AAL, one of its biggest airline partners, sued Gogo in Feb. 2016 to break its contract because it felt Gogo offered an inferior product. American Airlines pointed to its competitor ViaSat Inc. VSAT as a better in-flight Wi-Fi provider.

The news caused Gogo shares to fall 30% in a single day.

American Airlines dropped the suit only a week later and Gogo rebounded a bit. In June, ViaSat announced a deal with American Airlines to provide Wi-Fi for a new fleet of planes. Gogo still provides services to American Airlines.

For years, the company faced complaints about its slow internet service. But the American Airlines lawsuit might have helped propel the company forward because it prompted Gogo to install or upgraded more than 1,100 aircraft in 2016.

The Chicago-based company had not conducted a substantial upgrade to its services since it first launched its in-flight internet services in 2008. Gogo has raised its prices in recent years to curb demand it can’t support. The company currently offers in-flight internet services ranging from $7.00 for one hour to $719.00 for a full year across multiple airlines.

Gogo announced plans to upgrade its 2Ku satellite broadband service in Summer 2016. The new service will be able to provide in-flight Wi-Fi at speeds upwards of 100 Mbps. Just last week, Gogo made its intentions for its 2Ku technology clear in a press release. "There are now more than 100 2Ku aircraft flying with our first-generation modem utilizing existing wide-beam satellite technologies,” CEO Michael Small said.

“Under these conditions, the technology is already delivering industry leading performance. With the new modem and HTS satellites, we are setting a very high bar for the industry. We are going to deliver this technology upgrade to our airline partners without needing to take an aircraft out of service, which is incredibly important for their operations."

Gogo announced its new upgraded modems will be installed starting in mid-2017. The proprietary features have increased throughput and reliability. And it will be installed in more than 1750 airplanes on 13 different Gogo-supported airlines.

The upgraded speed promises users they will be able to stream video and live television through the company’s new Gogo TV, which could prove to be vital going forward.

Gogo services nearly 9,000 airplanes worldwide and controls roughly 80% of the in-flight Wi-Fi market. Air Canada AC, Alaska Airlines ALK, American Airlines, Delta DAL, United UAL and Virgin America VA are all Gogo partners. The company provides in-flight internet services to four of the top-five U.S. airlines.

Overall, the company has partnerships with 16 commercial airlines and has pushed heavily into the Asian markets in the last few years.

Gogo provides services to Japan Airlines, Japan Transocean Air and Vietnam Airline. The company recently announced it had received approval to provide service to aircrafts flying in Chinese airspace. Gogo also began working with China Telecom Satellite.

The company announced in early Feb. it hired Patrick Carroll as regional president in Asia Pacific (APAC). "As the growth of connected aviation in Asia Pacific expands, Gogo is committed to serving our airline partners in that region along with cultivating new growth opportunities for our 2Ku satellite technology in this market," COO John Wade said in a press release.

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