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Gogo Inc. First-Quarter Revenue and EBITDA Above Estimates

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By on Energy & Solar, S&P 500, Technology & Software

Monday morning, Gogo announced financials above estimates on strength in its North American commercial aviation and business aviation segments. First-quarter revenue upside for the North American commercial aviation division was driven by increases in both the take-rate and average revenue per session relative to last year. Business aviation revenue growth continues to benefit from the introduction of voice and text services on Gogo’s air-to-ground network.

The company is on target to launch satellite service on 50 to 100 aircraft by the end of the year. We view the recent stock decline following the AT&T (T $36.44; Market Perform) in-flight announcement as an attractive buying opportunity given the company’s healthy fundamentals and numerous catalysts on the horizon. We expect the second-half official launch of texting for commercial passengers to be the next catalyst for shares. The service is currently in beta with select Gogo customers. With positive secular trends, we believe that the service provider is in solid position to meet or exceed the 2014 guidance that calls for 25% revenue growth at the midpoint.

Over the long term, the proliferation of Wi-Fi–enabled devices and the rollout of additional services should allow industry in-flight Internet take-rates to more than double over the next five years, in our view. As the world’s largest provider of in-flight Internet, Gogo will be one of the biggest beneficiaries of this trend. With large barriers to entry as a result of exclusive 10-year contracts and high switching costs, we believe that it will be very challenging for AT&T or other competitors to infringe on Gogo’s North American commercial business. The international market is still in the nascent stage, and we believe that it will drive the next leg of growth for Gogo. We expect that Gogo will elaborate more on these growth opportunities and its solid competitive positioning at its analyst day on June 18. The valuation, at 2.6 times our 2014 revenue estimate, is an attractive entry point for investors, in our view.

Revenue was $95.7 million, compared with our $93.5 million and consensus of $93.7 million, on 35.2% year-over-year growth. The revenue upside was driven by strength in the business aviation segment, as business aviation sales of $38.6 million were 5.0% above our $36.6 million estimate. North America commercial aviation revenue was also solid at $57.1 million, which was 0.8% above our estimate. North America commercial aviation and business aviation sales increased by 31.6% and 47.4%, respectively. Adjusted EBITDA were $5.3 million, compared with our estimate of $1.5 million and consensus of $847,000.

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