Gogo Inc.

Gogo Inc. (NASDAQ: GOGO) is the top provider of business aviation broadband connectivity services globally. It creates, manages, and maintains specialized air-to-ground (ATG) networks, develops and maintains proprietary hardware and software in-flight systems, and offers airline partners flexible connectivity and wireless entertainment services. GOGO generates revenue by selling equipment and services, such as narrowband satellite-based phone and data services, made possible by satellite provider agreements.

Why Should Investors Book Profit?

• Lackluster Financial: The company is operating at a net margin of -18.0% in FY20 compared to the industry median of 6.3%. GOGO has a history of net losses over last 5 fiscal years beginning from FY16.
• Weak Liquidity Profile: The company's current ratio at the end of FY20 is 1.17x, reduced from 1.68x at the end of FY19. This implies declining liquidity profile against the previous fiscal.
• Supplier Concentration Risk: The antennas and modems for all systems and the equipment used at GOGO's ATG cell site base stations are all supplied by single-source vendors. The firm's operations and cash flows could be impacted if it is unable to continue engaging suppliers with the skills or capacities required by its business or if such suppliers fail to offer quality equipment and services in sufficient quantities.
• Dependence on OEMs: Contracts with OEMs and aftermarket dealers accounted for more than 90% of its equipment revenue in each fiscal year. If one or more significant OEMs or dealers quit their relationship with the company, or if its contract expires and is not extended, it could impact its operations and financial position.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

GOGO's share price has inclined 20.63% in the past six months and is currently leaning towards the higher band of the 52-week range of USD 9.18 to USD 19.49. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 14.17.

Considering the company's continuing net losses, declining liquidity profile, current valuation and associated risks. We recommend a "Sell" rating on the stock at the closing price of USD 16.16, as of March 07, 2022.

1-Year Technical Price Chart (as of March 07, 2022). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.