GOGO – Series of Interesting situations

GOGO

Introduction

Gogo offers inflight connectivity services to passengers on business aircraft in the US and Canada. Despite strong revenue growth up until 2022 and initial expectations of 17% CAGR growth throughout the rest of the decade (which remained in place until early 2023), Gogo has seen its market capitalization drop by more than half over the past 18 months. This decline is largely due to stalled growth stemming from significant delays in launching its two key products, as well as the rapid growth of its main competitor, Starlink (though Starlink primarily focuses on larger aircraft).

Here’s a brief overview of the initiatives (full detail in the thesis):

• ATG 5G: Gogo 5G is anticipated to provide much faster connectivity (going from single-digit megabits per second today to tens and eventually hundreds of megabits per second in the coming years). However, due to a shortage of 5G chipsets and a design flaw in a non-5G component of the chip, the launch has been postponed to mid-2024.
• Gogo Galileo: Gogo has partnered with OneWeb to leverage its global Low Earth Orbit (LEO) satellite network. Gogo Galileo is designed to serve all aviation markets globally and accommodate any aircraft size. LEO satellites are faster than GEO satellites because they orbit closer to the aircraft. The primary hardware adjustment required would be the addition of an electronically steerable antenna on top of the aircraft, with the rest of the upgrade managed via remote software.

These delays have increased the significance of the company’s debt ($592MM) relative to its market cap ($980MM), although this isn’t seen as a major issue for a company with stable EBITDA of $150MM (mostly subscription-based), which is expected to grow once these initiatives are implemented.