Monday, May 12, 2014

* GOGO - Earnings Results Postmortem: How the Good News... May Not Have Been that Good...

GOGO closed trading at $12.67, up 6.2% with IV30™ down 10.6%. The Symbol Summary is included below.

Provided by Livevol

The stock released earnings before the bell today, and the equity market generally liked the news... 'sort of'. More on the 'sort of' soon, but there's a lot going on with GOGHO, so let's get to the details.

First, this is a follow up to my pre-earnings post here:
5-1-2014: GOGO - Stock Implodes... Now What? Here's What the Option Market Reads.

As of that post GOGO was trading at $13.33, but down abruptly on news of AT&T (T) launching in-flight internet connectivity.

What: Shares of Gogo lost roughly 28% of their value today on news (issued after Monday's closing bell) that dominant wireless telecom company AT&T would launch a competing in-flight Internet connection service by the end of 2015.

So what: AT&T and Honeywell, a major supplier of avionics (the electronics systems used in aircraft and other air- or space-borne systems), will team up to provide 4G LTE service for air travelers by late next year. This will be similar to the airborne Wi-Fi technology Gogo already supplies to the vast majority of commercial aircraft that traverse the United States. Honeywell estimates that its deal with AT&T should result in roughly $1 billion in revenue over the next decade as the partners build out the service. AT&T has declined to project any revenue figures of its own.

Source: Why Gogo Inc. Shares Crashed and Burned Today

The Charts Tab is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Provided by Livevol

We can see that nasty gap on the AT&T news.  On 4-23-2014, this was a $19.75 stock, and that's why I say the equity market 'sort of' liked the earnings results.  yes the stock is up from the all-time lows, but it's way below the ~$36 all-time high, and even yet below the price just three weeks ago.

Here's what we gotta know about earnings

  1. Net loss of 20 cents a share (Thomson Reuters estimates were -$0.25)
  2. Record revenue of $95.7 million for the quarter, up 35 percent percent versus the first quarter of last year (beat estimates of $94 million).
  3. Service revenue of $72.3 million, was up 32% (YOY)
  4. Equipment revenue of $23.4 million, was up 48% (YOY)
  5. Adjusted EBITDA of $5.3 million, was up 87%
  6. Free cash flow was negative $45.4 million, decrease of $11.7 million from a negative $33.7 million from the first quarter of last year.
  7. Management reiterated guidance for revenue between $400 million and $422 million (Analysts expect $412.9 million)
The CEO also stated with great certainty that the firm has the resources to remain in operation on its own.

Most of this information and further detail breaking the numbers down by Commercial Aircraft, Business Aircraft and Commercial Aircraft Rest-of-World are available from this very helpful article:
GOGO Q1 2014 Earnings Conference Call Highlights, written by Eric Niederer via Benzinga.

The rest comes from
Why Gogo (GOGO) Stock Is Up Today, written by Keris Alison Lahiff.

So, a revenue beat, a guidance up tick and an earnings (loss) beat.  But what about that AT&T competition?... GOGO seems "unaffected."  Check out this article:

When AT&T (T) made its move into high-speed in-flight Wi-Fi two weeks ago, the announcement jolted investors into visions of doom for Gogo (GOGO), the industry’s largest player.


Here’s how Gogo made a case for itself: “The simple answer is our next-generation solutions … will be faster and will be flying sooner than AT&T’s proposed solutions,” Chief Executive Officer Michael Small told analysts. “We keep seeing competitors talking about what they will do tomorrow and comparing it to what we did yesterday.”

Source: Bloomberg BusinessWeek via Yahoo! Finance Why Gogo Thinks AT&T Won’t Steal Its In-Flight Wi-Fi Customers, written by Justin Bachman

I love that last bit: “We keep seeing competitors talking about what they will do tomorrow and comparing it to what we did yesterday.”

In any case, GOGO certainly bounced off of lows, but it's apparent, for now, that the equity market does not see the competition as quite so trivial.  The stock is still very close to all-time lows and is off about 2/3 from it's high reached six months go.

If GOGO does prove to be head and shoulders above the rest, well, the stock should appreciate quite a bit over time.  If not... then... ya know, not...

This is trade analysis, not a recommendation.

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