GOGO Inc: Long Term Potential Upside Proven By Management's Updated Guidance

GOGO Inc: Long Term Potential Upside Proven By Management's Updated Guidance

October 19, 2021

Price (as of close on October 19, 2010)

$16.70

Rating

BUY

12- Month Target Price

$20.00

Gogo Inc. (GOGO)

Based on management’s recent updated guidance, we are revising our estimates higher. We increase our target price to $20.00 per share (earlier $18.00) and maintain our Buy rating.

Long-Term Financial Update

➢ Through 2025, management revised their expected compound annual growth rate of revenue to be 15% from 10% previously.

➢ Management is now targeting 2023 free cash flow to be $125 million ($100 million previously). GOGO is also forecasting free cash flow in 2025 to be $200 million.

➢ The Company also revised their adjusted EBITDA margins from 35-40% to 40-45% which matches our original investment thesis.

➢ By 2025, management assumes only 47% of North American business aircraft will be connected with in-flight connectivity, still representing a large unsaturated market.

➢ GOGO’s AVANCE platform combined with their OEM manufacturer relationships are the key to their success in that GOGO provides a superior product with superior customer experience.

➢ We increase our estimates based on management’s long-term financial update and their commentary. We maintain our Buy rating and increase our target price to $20.00, implying a price appreciation potential of 20%.

RISKS

➢ Potential entry from SmartSky (their closest competitor) could cause GOGO to spend more on customer acquisitions or force GOGO into a price war.

➢ Low Earth Orbit (LEO) satellite companies may have lower than expected margins in a partnership with GOGO, may not partner with GOGO or may take customers from GOGO.

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