Small Cap Gogo Inc (GOGO): Is There Turbulence Ahead? IRDM

Small cap Gogo Inc (NASDAQ: GOGO) leaped 10.04% yesterday after announcing its first international deal where it would provide in-flight Internet service on the entire domestic fleet of Japan Airlines (JAL) – meaning it might be a good idea to take a closer look at the stock along with Iridium Communications Inc (NASDAQ: IRDM), another formerly highflying communications stock that hit heavy turbulence and ultimately crashed over a decade ago.

What is Gogo Inc?

Formerly known as Aircell, small cap Gogo Inc's proprietary Air-To-Ground broadband network allows passengers with laptops and other WiFi enabled devices can get online on all domestic AirTran Airways and Virgin America flights and on select Air Canada, Alaska Airlines, American Airlines, Delta Air Lines, Frontier Airlines, United Airlines and US Airways flights plus on thousands of business aircraft. In fact, there are more than 6,500 Gogo equipped aircraft to date.

For reference, small cap Iridium Communications' predecessor was Iridium SSC which filed Chapter 11 bankruptcy on August 13, 1999 - just nine months after launching its satellite mobile service that was prohibitively expensive for most consumers at the time. Iridium SSC eventually remerged from bankruptcy as publicly traded Iridium Communications which remains the only satellite communications company offering truly global voice and data communications coverage just about everywhere on the planet thanks to 66 low-Earth orbiting (LEO) cross-linked satellites.

What You Need to Know About Gogo Inc

On Monday, Gogo Inc announced it would outfit JAL's 77 domestic aircraft fleet with its Internet service that will be available beginning in the summer of 2014. JAL will also be among the first airlines to employ Gogo Inc's satellite system operating as much of the company's current system is largely ground-based and operates mainly in the United States where it is already the largest in-flight connectivity provider – having about an 80% market share for WiFi-equipped aircraft.

However, would be investors should read a lengthy BusinessWeek article from last June which noted that only 6% of passengers on Gogo Inc equipped flights used the service during the first quarter. Moreover, every single passenger can't log onto the service at the same time because there is simply not enough bandwidth to support every passenger plus those that have logged on have apparently about a slow connection. The article also pointed out that Gogo Inc charges $14 for a daily pass, $34 monthly for a specific airline and $42 for a monthly pass on any airline with its equipment with service sold onboard being priced higher. In other words, the service is not exactly cheap plus most airports now offer WiFi for free (at least somewhere in the terminal) while most passengers (except high flying senior execs) can probably do without Internet for a few hours on a domestic route.

Finally, looking over Gogo Inc's financials posted on Google Finance does not inspire much confidence as while the company has reported revenues of $79.44M (3 months ending 2013-06-30), $70.75M, $121.36M, $57.88M and $54.27M for the past five quarters; it also has net losses of $55.99M (3 months ending 2013-06-30), $14.48M and $32.15M, net income of $2.90M and another net loss of $3.47M. On an annual basis, Gogo Inc has reported steadily rising revenues of $233.51M (2012), $160.16M (2011), $94.66M (2010) and $36.84M (2009) for the past four years; but also a net loss of $32.71M (2012), net income of $23.61M (2011) and more net losses of $113.38M (2010) and $142.27M (2009). Gogo Inc did have $312.15M in cash and $245.91M in total debt (most of it long term) at the end of last June.

Share Performance: Gogo Inc and Iridium Communications

On Monday, small cap Gogo Inc surged 10.04% to $17.86 (GOGO has a 52 week trading range of $9.71 to $19.80 a share) for a market cap of $1.50 billion plus the stock is up 11.6% since last June. Here is a look at the performance of Gogo Inc along with that of Iridium Communications over the longer term:

As you can see from the above chart, Iridium Communications has more or less trended down over the longer term.

Finally, here is a look at the most recent technical charts for both stocks:

The Bottom Line. Small cap Gogo Inc's financials could mean some turbulence ahead if more passengers don't get hooked on WiFi in the skies, albeit the company's cash position does give it considerable breathing room – probably more breathing room than Iridium Communications' predecessor Iridium SSC had.