It's happened to all of us.
We're running down an airport corridor, sweating like a
stevedore and hoping like hell we make the flight. We fly down
the concourse and arrive at the gate just as the ground crew is
beginning to close the door.
Huffing and puffing, we make it down the jetway, into the
plane and to ourseat .
We reach into our pocket and extract our cellphone. But before
you can say "Words With Friends," the flight attendants sternly
instruct us to stow all electronic devices. Unable to check in
with a loved one waiting on us, we're held incommunicado until we
It doesn't have to be this way. And it's not going to be this
way much longer.
Rules about the use of cellphones and other electronic devices
are currently under review by federal regulators. TheWall Street
"The Federal Aviation Administration is expected to relax
the ban on using some types of personal-electronic devices at
low altitudes, allowing passengers leeway during taxiing and
even takeoffs and landings. The new rules would likelymean an
end to familiar admonitions to turn off and stow all electronic
devices. Details are still being debated. Still, the [move]
reflects a consensus that the existing rules,
essentiallyunchanged since the 1960s, have been overtaken by
dramatic changes in technology."
The news was heralded as long overdue by millions of fliers,
who contend that the rules are outdated. Soon, observers say,
most electronic devices, even cellphones,will be used on board
The Journal's article was published June 21. The same day a
new company hit the Street...Shares of
Gogo (Nasdaq: GOGO)
, a company that provides in-flight Internet connectivity, began
Gogo is a true game-changer
. This company's technology curve isn't going to be drawn over
decades... I expect it to take off in a matter of months. It will
look more like a vertical line on a chart.
Please take careful note: I'm not saying Gogo "will be" or
"might be" a game-changer. I'm saying "is." Present tense.
The company has already succeeded in bringing the Internet to
air travel. Gogo brings the mobile Internet to the sky. In fact,
just two days before theIPO , I personally used Gogo on a flight
Here's how the company describes itsmarket position in its
"Gogo is the world's leading provider of in-flight
connectivity. We have the largest number of online aircraft in
service and are a pioneer in wireless digital entertainment and
other services in the commercial and business aviation markets.
... We enable our commercial airline partners to differentiate
their service offerings, increase passenger satisfaction and
unlock newrevenue streams."
I've come up with three key points that I think make the case
for Gogo to rise significantly from current prices...
1. Revenue is on the rise
. Gogo'stop line rose 146.7% from 2010 to 2012. Annualizing
thisyear 's first-quarter results gives us a reasonable 2013
revenue estimate of $283 million, a year-over-yeargain of 21%.
That computes to acompound annual growth rate of 44%.
I am comfortable projecting 20% growth in the top line for
this company for the next three years. Thatputs revenue in the
$490 million range by year-end 2016. Why so confident? Theincome
statement shows us two good reasons:
2. Pricing is on the rise
. Gogo has managed to increase its per-session fee by 55.6%
without losing customers. In fact...
3.Volume is on the rise
. In 2010, 4.7% of the people who took flights on Gogo-equipped
aircraft shelled out for Internet access (37 million passengers
so far, according to the company's most recent count.) Now, the
"take rate" is up to 6.2%.
Room for Growth
I'm from the "trust, but verify" school. So I made a list of
Gogo's announced airline clients and researched their respective
aircraft fleets. I came up with a total of just over 1,800
planes. Gogo says 1,878 at year-end 2013 with a few more as of
the end of April, according to theprospectus . These numbers are
close enough for me to have confidence: Airlines have several
thousand planes on order, and new jets go into service fairly
In other words, Gogo has the chance, just in North America, to
add another couple thousand planes to its market.
That's more than twice what it has now, and that is just in
Priced to Buy?
Gogo is here. It's already a true game-changer. Founded in 1991
to bring phone service to the skies, it's now providing data to
millions of fliers. I think its network will continue to expand,
both in capacity and speed (quality) and in fleet count
(quantity). This is a very appealing position to be in,
especially when turning aprofit appears to be so close.
However, this IPO was poorly priced. Its underwriters shot for
the high end, and they missed. Shares have fallen as low as the
$10 range since they debuted at $16. Today, they are in the $10
to $11 range.
Gogo still has alot of hurdles and may take a few years to
reach its full potential, but I wouldn't be surprised to see it
become one of my
best-performing picks of 2013
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