Is Gogo Stock a Good Investment?

In the face of constant passenger demand for smooth connectivity at an altitude, Gogo Inc. (NASDAQ:GOGO) has been pushing its limits to provide faster internet speeds, better entertainment options, and a wider range of onboard services to improve overall passenger satisfaction.

The company has rolled out 4G and 5G connectivity for in-flight Wi-Fi internet access. It has also partnered with streaming services such as Netflix and Hulu to provide passengers with a wide array of in-flight entertainment options. 

In spite of its progress, Gogo shares have been pressured downwards over the past 12 months, losing more than 30% of their value. 

But following significant success with two key initiatives, Gogo Galileo and Gogo 5G, the share price may due for an uptick once again, so is it time to buy Gogo?

New Developments Set To Drive Growth

At the end of March, Gogo recorded a remarkable achievement with Gogo Galileo service when the company set up an end-to-end connection by using its HDX antenna on the Eutelsat OneWeb Low Earth Orbit (LEO) satellite system.

It also reported that it had an ongoing virtual flight simulation test of its 5G software during this period of time.

In February, Gogo received its first engineering prototype of the antenna from Hughes Network Systems, the HDX. Subsequently, Gogo’s President and COO, Sergio Aguirre, stated that the HDX antenna is set to revolutionize aviation connectivity.

The successful link with the Eutelsat OneWeb network effectively proves out the the antenna functionality and the broader Gogo Galileo system.

Further good news stems from the FCC providing the necessary regulatory approval for Gogo Galileo HDX and FDX antennas on business aircraft.

The company plans to do HDX terminal testing this summer. The HDX terminal is gearing up to be launched commercially this year.

5G Has Been a Long Time Coming

While the latest 5G networks plans are set to substantially improve air travel experiences, it has been a long time coming.

In the late 90s, Gogo began their journey with analog air-to-ground (ATG) technology, but when analog cellular backhaul disappeared, it migrated to narrowband satellite connectivity in the early 2000s.

Then it finally went back to ATG with its digital broadband 3G and 4G networks since 2010. Finally now 5G commercialization is set for Q4 2024.

The way it works is that Gogo uses a technology supplied by the RF engineering group to simulate airborne radio links and validate Gogo 5G software. This novel approach by Gogo yields more than a 90% confidence level in performance testing. 

Furthermore, Gogo is in the process of migrating its Gogo Biz air-to-ground (ATG) technology to LTE. In particular, Gogo is planning to transition to the LTE network beginning in 2026.

At the end of 2023, Gogo was embedded in approximately 7,200 ATG business aircraft, and about 4,000 were equipped with its AVANCE platform with approximately 3,200 featuring the Gogo Biz legacy ATG broadband system.

How Gogo Plans To Grow

Gogo’s “Now and Next Strategy” reflects the management’s plans to build a large business aviation presence globally while at the same time re-establishing Gogo as a leader in the North American market. The plan boils down to targeting business customers with the AVANCE platform.

Management has claimed that they aim to broaden relationships with OEMs, aftermarket dealers, and even fractional jet operators thanks largely to their product innovations.

A further string to the bow will be the streamlined capital allocation strategy to reward shareholders. All of which should be music to the ears of existing and new shareholders.

If it can executed well, the company may very well re-capture its former leadership status in the business aviation industry.

How Is Gogo Doing Financially?

Equipment revenue, which decreased by 45% compared to the same period last year to $16.9 million, was the main reason for the 10% decline in total revenue during the last reported quarter. Nonetheless, service revenue in the quarter reached a record of $80.9 million as it advanced by 5% from the same period last year.

Moreover, in the year ended December 31, 2023, total revenue was $397.6 million versus $404.1 million in the year prior due to a decrease in equipment revenue, which was partially offset by an increase in service revenue.

Service revenue boomed to $318.0 million for the period ended December 31, 2023, as opposed to Equipment revenue, which dropped to $79.6 million, primarily because of a decline in the number of ATG units sold.

Service revenue is expected to rise in the future as more aircraft come online with the forecasted increase mostly attributable to Gogo 5G and Gogo Galileo launch.

In addition, equipment revenue is anticipated to grow, bolstered by possible additional sales of Gogo 5G and Gogo Galileo units.

The company recorded a net income of $14.5 million in the fourth quarter of 2023, which was a 48% decline from the $27.7 million seen in Q4 2022.

On the other hand, the company reported a net income of $145.7 million in the last fiscal year, which was an increase from $92.1 million in the prior year. Free cash flow went up significantly to $82.7 million from $57.8 million in 2022.

Gogo remained bullish about its $150 million to $200 million free cash flow goal in 2025 and expected long-term revenue growth of around 15 to 17% from 2023 to 2028, supported by the new products.

Is Gogo Stock a Good Investment?

Gogo stock has all the hallmarks of being a good investment with high shareholder yield of 9.2% and a low price-to-earnings ratio of 8.5x. 

Relative to near-term earnings growth, Gogo also appears attractive given that the PEG is currently just 0.12x. Profitability is forecast to continue this year.

With that said, the stock is currently trading at 3.3x sales, which sits well above the industry average. 

All in all, analysts are bullish and forecast as much as 14.9% increase in share price to $12.80 per share, the consensus price target.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.