Gogo falls in 1st day of trading on the Nasdaq

Friday, June 21st, 2013 | Finance News

Shares of airline Internet-service provider Gogo Inc. fell on their first day of trading, which followed a two-day plunge in the stock market.

The shares were down 94 cents, or 5.5 percent, to $16.06 in afternoon trading Friday on the Nasdaq. They had dropped as low as $15.50 in the morning.

The initial public offering of stock came at the end of a tumultuous week on Wall Street. The Dow Jones industrial average tumbled 560 points on Wednesday and Thursday after Federal Reserve chairman Ben Bernanke detailed plans to reduce Fed stimulus for the economy.

Citing market conditions, a Brazilian cement company and a Kansas City maker of veterinary drugs postponed IPOs this week, but Gogo charged ahead.

The Itasca, Ill.-based company uses a network of cell towers to provide Internet access for passengers on more than 1,900 planes, which it says account for 81 percent of all Wi-Fi-enabled planes in North America.

Customers include four of the five biggest U.S. airlines — United, Delta, American and US Airways — which in turn charge passengers for Internet access. Southwest Airlines uses a rival Wi-Fi provider, Row 44.

Gogo is seeking to expand its service to international flights, including those operated by foreign carriers. In March, it signed an agreement with Delta to outfit the airline's entire international fleet of 170 planes with satellite-based service.

CEO Michael Small said Friday that the company decided to sell the shares now because its planned international expansion "is becoming real."

The IPO will help pay for that expansion, Small said in an interview, and "the credibility of being a public company will help us with airlines around the world."

Only about 6 percent of passengers pay for Internet, according to a recent Gogo regulatory filing, but that's about double the rate of two years ago. Small said that passenger usage will rise as airlines connect their entire fleets and let passengers order the service when they buy tickets.

The company, whose typical customer is a business traveler seeking to stay connected with the office, also is trying to reach more leisure travelers with its Gogo Vision movie offering, now available on three airlines.

Paul Bard of IPO research firm Renaissance Capital said that market jitters contributed to Gogo's first-day decline. He said investors looking for a hot stock bailed out when Gogo shares didn't soar right away, and there could be concern about the company's ability to become profitable.

"It seems like a no-brainer that every airline is going to want to offer this (in-flight Internet) service, so the opportunity is very big," Bard said. "But the performance is slow, you can't get video, and they're going to have to invest heavily" to improve the service. "They're growing fast, but they're not profitable."

Investors also could be concerned that new rivals, such as cell phone companies, could emerge, he said.

Gogo raised $187 million from the initial public offering of 11 million shares. The offering was priced at $17 per share, at the high end of the projected $15 to $17 range. The underwriters can buy up to about 1.7 million more shares to cover any excess demand.

Gogo filed for an initial public offering of stock in December 2011 but held off selling shares during a sluggish market for IPOs. In the meantime, the company obtained a $135 million credit facility last year in a deal arranged by Morgan Stanley, and it increased the borrowing limit by $113 million in April.

The shares are trading under the "GOGO" ticker symbol. The offering is expected to close on Wednesday.