Riding the wave of a strong business aviation recovery, in-flight connectivity provider Gogo is on a mission to make sure the world knows it is a successful business. And one that believes its stock should be trading at a higher price.
And it appears to be working. Shares are up 50% since the beginning of the week when the company revised revenue guidance higher for the rest of this year as well as the next five years.
We sell equipment at a profit, then reap the benefit of extremely sticky cash generative service revenue, 95% of which is subscription-based service revenue.
Once past the once in a decade network upgrade with 5G in 2022, we expect to return to very strong EBIDTA, as our normal maintenance capex is very low, particularly when measured against telecommunications industry standards.– Gogo CEO Oakleigh Thorne
From hardware to services revenue
The catalyst for the revised guidance is hardware sales, though that’s not where the company makes most of its profit. While the on-board gear comes with a nice margin (30-40%, though decreasing), the long-term recurring revenue is where Gogo really makes money.
For 2021 the company now expects to sell more than 850 new AVANCE systems, 30% above original estimates. Those sales then generate bandwidth subscriptions, where margins also are expanding.
Customers are keen on the company’s new high-bandwidth or unlimited streaming plans. Just 50 customers signing on to the new plans in the weeks following their initial launch triggered an increase of nearly $200 per aircraft per month (ARPU) on the AVANCE fleet, according to Thorne.
Moreover, the company sees significant potential to further raise prices as the GOGO-5G network comes online next year.
But why now?
The story may be compelling, and the digs at Gogo’s competition are certainly entertaining. But why did the company choose to run a special briefing, especially with an earnings call on the horizon?
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