Archive for the ‘GOGO’ category

GOGO – A Monopoly in the Making

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Gogo Inc (GOGO)
Stock Price: $22
Diluted shares: 84.2MM
Market cap: $1.85BN
Cash: $266MM
Working capital deficit, ex-cash: $54MM
LT Debt: $236MM
Other Liabilities, not including Deferred Taxes and Lease Incentives: $14.4MM
EV: $1.89BN

One of my secular investment themes is mobility (which I plan on covering in detail in a future note). GOGO is a pure-play on this theme and happens to be a really interesting story in a largely untapped niche. While I am a value investor and generally avoid overpaying, I do make exceptions when I believe a company is in the process of building a monopoly-like position in a large market. GOGO fits this profile which is why I’m a buyer post the 4Q13 earnings drop. Here are my notes:

GOGO brings the mobile internet age to aircraft via 3 products: Gogo Wifi, Gogo Vision, and Gogo Text & Talk. Each of these products could stand on its own; together, they make Gogo the communications nerve center for an aircraft and the undisputed leader in the industry. Some specifics on each product:

  1. Historically, Gogo Wifi has used a network of mobile broadband cellular towers that are beamed up instead of beamed down to deliver internet connectivity to aircraft passengers in the US (known as Air-to-Ground). However, recently Gogo developed a proprietary hybrid technology that combines Gogo’s Air-to-Ground network with the best aspects of existing satellite technologies (known as Ground-to-Orbit). This new Ground-to-Orbit (GTO) technology represents a leapfrogging of standard satellite service capabilities, expanding Gogo’s network capacity 20 fold from 3 megabits per second to 60 mbps (and that 60 mbps will only go up as newer satellites are launched). What Gogo has developed is a low profile antenna with high spectral efficiency and low latency. For consumers, nothing in the market is faster, more efficient or more reliable (for a technical discussion, see here – the video starts at 5:30 and ends at 24:30). For airline partners, Gogo’s GTO means they save tens of thousands of dollars each year in fuel burn versus the larger and heavier antennas on the market today. It’s a win / win. And finally, what this new GTO technology means for Gogo’s shareholders is that Gogo is now ready to begin its worldwide expansion. The network will be ready to launch in 2H14 and the first Gogo customer to commit to the service is Virgin America.