OneWater Marine investment thesis
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GOGO & OneWater Marine – Analysis & model updates

GOGO Analysis & Model update

Last May, we presented the full thesis of GOGO, the world’s largest provider of broadband connectivity services for the business aviation market with operations in the US and Canada. 

The company is in an investment cycle intending to deploy the newest technology to ensure it keeps its market leadership in the upcoming years in a market still unpenetrated, expected to grow at a high pace as passengers in business aircraft demand connectivity inflight. Gogo is very well-positioned to capitalize on the growing demand for inflight connectivity solutions in the private jet market.This year’s results have been below market expectations and together with the delay in one of the two major initiatives and the general downturn in small caps has made the stock go down by around 15%, positioning the share price at 8-9x EBITDA for a tech company expected to increase revenues at a +15% CAGR until 2027 with a strong free cash flow generation and tremendous margins. We believe the long-term perspective is unchanged and that we can take advantage of temporary problems with a company that may be a nice long-term play.

The business model is a good example of a razor-razorblade business model. It starts with an initial sale of equipment to dealers or the final customer with a gross margin of ~25%. Once it is installed, customers construct subscription plans by which Gogo earns recurrent revenue with margins above 75%. With an approximate 0.5% monthly churn rate, Gogo achieves 17 years of equipment life on the aircraft with the corresponding recurrent revenue and earnings.

The investment thesis is highly leveraged on the two initiatives Gogo is investing in. They will reaccelerate growth both in the number of aircraft using their services and for the increase in Average Revenue Per User (APRU).

ATG 5G

Gogo 5G is expected to deliver much faster connectivity (from single-digit megabits per second today to 10s and then hundreds of megabits per second over the next few years). In the latest updates, the company is announcing the good development of this initiative in Canada too.

It was originally meant to be launched in 2022, and then at the end of 2023. However, due to the lack of 5G chipset availability and a design error in a non-5G component of the chip, the launch has been delayed to mid-2024. Remarkably, the actual cost invested in the 5G initiative is in line with 2019 expectations.

In the meantime, customers interested in 5G service can equip their aircraft with AVANCE L5 and operate on Gogo’s 4G network. This offer is available for installation today, with a significant discount for the buyers. The only change needed to hardware change will be to replace two antennas with another two with equal size and form. 

$GOGO Avance

Gogo Galileo: Gogo has partnered with OneWeb to utilize its global LEO (Low Earth Orbit) satellite network. It is expected to be revenue accretive in 2025. Gogo Galileo is meant to serve all the aviation markets, everywhere in the world and fit any aircraft size. LEO satellites are faster than GEO satellites because they are closer to the aircraft. The largest hardware change needed would be to add an electronically steerable antenna on the top of the aircraft. The rest of the upgrade would be remote software. The business intention with Gogo Galileo is threefold: 

  1. Address the 14,000 business aircraft outside of North America in which the penetration rate (the number of aircraft in the BA segment with inflight connectivity) is much lower than in NA. 

  2. Pursue larger NA jets that fly with Gogo in the US but use GEO satellites outside NA. Thanks to these two initiatives, Gogo will be able to serve this premium segment with LEO and ATG connectivity at the same time, enhancing connectivity performance.

  3. Enhance the stickiness in medium and small-size aircraft for which they will provide even faster connectivity thanks to the combination of LEO with ATG 5G.

Apart from positioning Gogo in an advanced position compared to the competitors, we do think that these initiatives will be rapidly accretive on the revenue side and also will imply higher margins (due to the increase in ARPU and the lower Opex once the investment is finished). 

GOGO Valuation & Model

In all, in a scenario in which the initiatives’ development goes more or less as expected, the company has already the structure needed to deploy it (relationships with dealers and OEMs) and would be able to continue growing their top-line and free cash flow generation. Our base case scenario is the following, which is less optimistic than the company’s guidance.

OneWater Marine Model Update