Shares in US in-flight broadband provider Gogo shot up more than 10% after local telecoms giant AT&T scrapped ambitious plans to launch a 4G LTE air-to-ground service.
The stock had plummeted around 9% in earlier trading after Gogo reported quarterly…
Shares in US in-flight broadband provider Gogo shot up more than 10% after local telecoms giant AT&T scrapped ambitious plans to launch a 4G LTE air-to-ground service.
The stock had plummeted around 9% in earlier trading after Gogo reported quarterly losses that were wider than analysts had expected at US$24.9m, compared with a US$18.7m loss for Q3 2013.
AT&T is walking away from the plans just seven months after it announced a partnership with aerospace manufacturer Honeywell to roll out the services in late 2015.
The telco was cited saying it has decided to focus its capital instead on “transformative investments, such as international and video”.
It is currently in the middle of a US$48.5bn deal to buy US satellite broadcaster DirecTV.
On Friday it agreed to acquire Iusacell, Mexico’s third-largest wireless operator, for US$2.5bn in a move that could be the precursor for further M&A in the country, according to New Street Research analyst Jonathan Chaplin.
“Given the investment required to make Iusacell’s network truly competitive, the acquisition wouldn’t make much sense on its own; however, it makes a ton of sense as a precursor to an acquisition of the assets Carlos Slim’s America Movil (AMX) will divest in Mexico,” he said.
“We thought AT&T would buy the AMX assets before; the Iusacell deal makes this even more likely.”
AMX, which controls 70% of the Mexican mobile market and 80% of the fixed-line segment, needs to sell assets to comply with changes to the country’s telecoms laws.
Despite Gogo’s widening loss, the group was upbeat on the results and said it had made a record US$104m in quarterly revenue, up 22% from US$85.4m in Q3 2013.
CEO Michael Small said: “We had another strong quarter as we announced airline partnerships with Virgin Atlantic and Vietnam Airlines, signed agreements with Air Canada and AeroMexico, and in October, announced that we expanded our partnership with United Airlines to include its regional jet fleet.
“Furthermore, we delivered our first US$100m revenue quarter and took major steps towards monetising everyone on the plane by launching our wireless entertainment and text messaging solutions.”
However, pricing pressures, regulations, satellite coverage, and installation costs weigh on the industry as a whole.
Wells Fargo analyst Andrew Spinola pointed to Gogo’s Take Rate, which was below expectations at 6.2%, as a particular concern.
“There are a number of possible reasons why the Take Rate is lower, such as limited capacity/high pricing to limit usage, but the bottom line is that the factors limiting Take Rate are not likely to be easy to fix in the near or even medium-term and will likely impact the model going forward unless it can be offset by further increases in pricing,” he warned.
Gogo shares closed up 10.6% to US$18.40 on 10 November.
