Growing demand to surf the Internet while flying has driven shares of inflight WiFi provider GoGo Inc. sharply higher.
GoGo's shares soared 29 per cent on Monday to a record high after the Illinois-based company raised its revenue outlook and reported third-quarter earnings that beat analyst expectations. The stock is up more than 40 per cent since it went public on June 21, outpacing a 17-per-cent increase for the tech-heavy Nasdaq over the same period.
The strong results follow the U.S. Federal Aviation Administration recent approval of the use of electronic devices, such as tablets and iPods, throughout flights, including takeoff and landing. That has encouraged analysts who are bullish on GoGo's growth plans and leading position for inflight Internet, a burgeoning market that is changing the way people communicate on planes.
"I find it hard to imagine a scenario where people don't expect to be on the Internet on a plane in three or four years from now," said Evercore Partners analyst Jonathan Schildkraut, who has a "buy" rating on GoGo stock.
GoGo's services are offered on more than 2,000 commercial aircraft, including AirTran Airways and Virgin America flights and select flights on Air Canada, American Airlines and Delta Air Lines. The company claims to have more than 80 per cent of a share of Internet-connected aircraft in the U.S.
GoGo charges $3 (U.S.) for 30 minutes of WiFi, $6 for an hour, $14 for a 24-hour pass and $49.95 for unlimited monthly access. Prices vary on where the flight is headed and how long it takes to get there. About 20 per cent of that revenue ispassed on to the airlines, analysts say. It's a small portion of airline revenue, but comes as beleaguered companies look for new revenue streams, including charging extra for items such as bags, blanket and pillows.
"The airlines have never really appreciated that they have a high demographic group 'captive' and 'bored' for long periods of time and looking for things to do. Connectivity opens up a whole new world of possibilities," said John Thomas, head of global aviation at L.E.K. Consulting, in an e-mail during a flight to Boston on Monday afternoon.
While GoGo gets most of the revenue, it also takes on the risk and pays for costs such as installing the service on flights, noted Mr. Thomas.
The company, which offers the Internet using so-called air-to-ground network, also faces increased competition from satellite providers such as Row44, Live TV, Panasonic and OnAir.
Investors were cautious on GoGo shares when they first went public at $17 on the Nasdaq almost five months ago. The stock slipped below $10 in August, but started to regain momentum in September after GoGo expanded its network capacity and began rolling out a service that allows passengers to talk and text on their mobile phones.
Monday's stock surge helped GoGo reach a market capitalization of more than $2-billion. Nearly six million shares traded hands, up significantly from its average daily volume of about 950,000.
Evercore's Mr. Schildkraut believes Monday's trading was driven by a large number of short sellers whom he said "gave up" after the company's strong earnings report.
GoGo said third-quarter revenue rose 48 per cent from last year to $84.5-million and raised its full-year guidance to $325-million, up from a range of $305-million to $315-million. Average revenue per WiFi user session increased 7.7 per cent to $10.63.
The company lost 22 cents a share compared with 16 cents a year earlier, but that was better than the 31-cent loss and $76.8-million in revenues analysts had expected, according to Thomson Reuters.
Prior to Monday's stock jump, four of the five analysts that cover the GoGo had a "buy" or equivalent rating, while one recommended a "hold."