Gogo (GOGO) shares were riding the stock market roller-coaster Monday after news that American Airlines (AAL) split its order for in-flight Wi-Fi between two providers.
American announced the agreement Friday, choosing ViaSat (VSAT) to provide service on roughly 100 of its Boeing (BA) 737 jets. Gogo will service about 430 other American aircraft, according to a note Monday from William Blair analysts. Also in the note, however, is American's option to de-install Gogo equipment on 550 aircraft within its fleet at any time.
Some shareholders might have anticipated the news from American, had they paid attention to Genevieve Kahr of Ailanthus Capital Management at the Sohn Next Wave conference (during which American was suing Gogo -- a sign of troubles to come, perhaps). Kahr presented Gogo as the first short idea of the meeting.
In her presentation, she found the company's claims of 74% "win share" on new business was misleading, as many of the wins were not contracted deals. Furthermore, Kahr pointed out that for a company that has been in business since 2008, the in-flight provider is cash-flow negative, highly leveraged with significant debt maturity that will be due in 2018.
The American deal is the latest blow to the in-flight broadband firm, which held 94% of the market share in 2010 as the only online service provider for flights. Since then, high-profile client Virgin America (VA) has ceased using its services and now American is splitting service providers.
Even with the market dilution, the William Blair analysts still believe Gogo has an attractive valuation. With shares trading at an enterprise value of 1.7x the 2016 revenue estimate, William Blair reaffirmed its Outperform rating.
Despite such optimism by William Blair, TheStreet's Jim Cramer said on CNBC's Squawk on the Street that is time to stop trading Gogo. Cramer said American's move is all about Netflix (NFLX), which is available on ViaSat but not Gogo.
ViaSat shares have grown more than 21% on the year, while Gogo's have plummeted more than 48%.
