Gogo Inc. (NASDAQ:GOGO) recently announced that it has installed 110 2Ku’s – its in-flight connectivity service – in third-quarter 2017. Reportedly, as of Sep 30, 2017, the company installed 2Ku service in 340 aircrafts.
In its last conference call, Gogo had targeted 2Ku installations in 450–550 aircraft, including approximately 150 in Commercial Aviation – Rest of World (CA-ROW) in fiscal 2017. The company also stated that it launched 2Ku service on five new airlines in the quarter.
As previously anticipated the company has been successful in accelerating 2Ku installation post Labor Day (Sep 4). John Wade, Gogo’s Executive Vice President and COO, believes that the company is well poised to “nearly double the number of 2Ku installations in the fourth quarter as compared to the third quarter."
Buoyed by the encouraging numbers (including the current installations), Gogo is now projected to install 2Ku service in about 600 aircrafts of 10 airlines by the year end.
Notably, shares have gained 27% year to date, substantially outperforming the industry’s 8.9% decline.
2Ku Installations – Key Catalyst
Gogo’s Business Aviation (BA) business has been instrumental in driving the company’s top line. In the last reported quarter, BA service revenues grew 30% year over year to $42.2 million. The results encouraged the company to reaffirm its outlook for 2017 wherein revenues are projected to be in the range of $670–$695 million.
We note that Gogo’s 2Ku service has been its chief growth driver. Lower bandwidth cost structure coupled with faster installation rate is helping the company to gain traction in the market.
The company has regulatory approval to install the service onboard majority of the important aircrafts. Last month, the company announced receiving an approval to install 2Ku on Boeing Inc’s (NYSE:BA) 777 aircraft and expects Boeing 767 aircraft to be included in the list by this year end.
In August, the company’s 2Ku solution was selected by Alaska Airlines for its entire Boeing and Airbus Fleet. In the same month, Delta Air Lines (NYSE:DAL) became the first customer to install the service on Airbus A350.
The company is also expanding overseas with the addition of K5-Aviation as its first 2Ku business aviation customer in Europe. In June, the company got regulatory approval from Chinese aviation to install the service on the international flights.
Increasing Adoption Improves Competitive Position
Per market research firm marketsandmarkets, the in-flight entertainment (IFE) market is anticipated to reach $6.91 billion by 2022 from about $3.18 billion in 2016 at a CAGR of 13.8%.
We believe the increasing adoption rate of Gogo’s 2Ku technology will be instrumental in driving top-line growth for the company. This will also help the company to cash in on the growing IFE market amid stiff competition from peers like ViaSat Inc. (NASDAQ:VSAT) .
Currently, Gogo carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
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