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small-cap

Speculative Bets on These US-Listed Small Caps – GOGO, RVP

Dec 22, 2021 | Team Kalkine
Speculative Bets on These US-Listed Small Caps – GOGO, RVP

Gogo Inc.

GOGO Details

Gogo Inc. (NASDAQ: GOGO) is the world's leading provider of business aviation broadband connection services. It designs, builds, and operates specialized air-to-ground (ATG) networks, engineers and maintains proprietary hardware and software in-flight systems, and provides aviation partners with configurable connectivity and wireless entertainment services. GOGO earns money by selling equipment and services, including narrowband satellite-based phone and data services, made possible by agreements with satellite providers.

Latest News:

  • Record Business Aviation Flights: On November 16, 2021, GOGO reported that its AVANCE L5, a business aviation broadband connectivity system, has flown on more than 500,000 flights since its August 2017 launch. Its customers are using 44% more data per flight than Pre-Covid levels. There are already over 1,500 aircraft flying with an AVANCE L5 system onboard, and the L5 system has consumed 273.7 terabytes of data throughout half a million flights.
  • Strategic Collaboration: Duncan Aviation, the most considerable maintenance and overhaul service provider in the US announced on November 2, 2021, that it is currently providing engineering and certification services to GOGO to complete the first-article Supplemental Type Certification (STC) for the Gogo 5G system.

9MFY21 Results:

  • Progress in Topline: GOGO reported a 26.72% increase in total revenues to USD 243.42 million during 9MFY21 (ended September 30, 2021) from USD 192.08 million during 9MFY20, due to a rise in both services and equipment revenues.
  • Decline in Losses: GOGO witnessed a decrease in net losses to USD 65.97 million during 9MFY21 from USD 250.88 million during 9MFY20.
  • Cash & Debt Position: The company's cash and cash equivalents were USD 133.23 million as of September 30, 2021, with total debt of USD 806.12 million.

Key Risks:

  • Dependence on OEMs: Contracts with OEMs and aftermarket dealers accounted for more than 90% of its equipment revenue in each fiscal year. Its operations and financial position could be impacted if one or more significant OEMs or dealers end their association with the company or if its contract expires and is not renewed.
  • Supplier Concentration Risk: The antennas and modems for all systems and the equipment utilized `at GOGO's ATG cell site base stations are among the components for which it relies on single-source vendors. If the firm cannot continue engaging suppliers with the competencies or capacities required by its business, or if such suppliers fail to supply quality equipment and services in sufficient quantities, its operations and cash flows could be harmed.

Outlook:

  • FY21 Estimates: GOGO estimates FY21 revenues to be around USD 325-335 million and adjusted EBITDA to be approximately USD 140-145 million, according to its Q3FY21 press release. GOGO expects free cash flows to be at least USD 40 million and capex to be at the low end of the previously forecast range of USD 20 to 25 million, with Gogo 5G accounting for most of the spend.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.