Is In-flight WiFi Stock Gogo, Inc. (GOGO) the Next Iridium?

The Iridium Communications, Inc. (NASDAQ: IRDM) fiasco about a decade ago might offer investors a cautionary tale about getting into small cap in-flight wifi stock Gogo, Inc. (NASDAQ: GOGO) too soon. Moreover, Gogo, Inc. just had an IPO, but Mad Money’s Cramer recently described that IPO as “horrible” and that "it's still bad” plus there are some issues with the company's in-flight wifi service itself.

What Went Wrong With Iridium Communications?

Iridium Communications’ predecessor, Iridium SSC and its satellite mobile service, was launched on November 1, 1998, and you might recall seeing commercials or advertisements showing someone making a call using the Iridium service while standing on top of a mountain. Such a service sounded great in theory but just nine months later on August 13, 1999, the company went into Chapter 11 bankruptcy.

Part of the problem was that the system could not work as advertised until an entire constellation of satellites costing billions of dollars was in place. However, the cost of Iridium’s service was prohibitive for most consumers at the time plus there was poor indoor reception. Moreover, the handsets were bulky and expensive when compared to what was on offer from terrestrial cellular services.

Eventually though, Iridium SSC remerged as publicly traded Iridium Communications which remains the only satellite communications company offering truly global voice and data communications coverage thanks to 66 low-Earth orbiting (LEO) cross-linked satellites. So the next time you want to make a phone call from the top of Mt. Everest or the South Pole, you probably can.

What Might be Wrong With Gogo, Inc. and In-flight Wifi?

Gogo, Inc. allows passengers with laptops and other Wi-Fi enabled devices to go online on all domestic AirTran Airways and Virgin America flights; on selected Air Canada, Alaska Airlines, American Airlines, Delta Air Lines, Frontier Airlines, United Airlines and US Airways flights; and on thousands of business aircraft. In fact, there are more than 6,000 Gogo equipped aircraft to date. In late June, Gogo, Inc. raised $187 million from an IPO where shares were priced at $17, but shares now trade at $13.30.

Nevertheless, Wall Street seems to like Gogo, Inc. as several analysts have the stock rated as a “buy,” “overweight,” “equal weight” and “outperform” but what matters at the end of the day is whether consumers or passengers will like the wifi service the company provides. That’s hard to say right now because Gogo, Inc. charges $14 for a daily pass, $34 monthly for a specific airline and $42 for a monthly pass on any airline with its equipment plus and service sold onboard is sold at a higher price – meaning its not exactly a cheap service to keep the kids entertained as the company obviously expects employers to foot the bill for their traveling executives/managers.

A lengthy BusinessWeek article also pointed out that only 6% of passengers on Gogo, Inc. equipped flights used the service during the first quarter plus every single passenger can’t log onto the service all at the same time as there is just not enough bandwidth to support it. And even with a small number of users, some have complained about a slow connection.

Finally, most airports probably now have free wifi at least somewhere on the premises. So unless you are some sort of highflying executive (or Wall Street Analyst) flying cross country during the daytime, its really hard to see how you can’t forgo wifi access for a few hours and instead read a book, a newspaper or magazine, watch a movie or just take a nap and enjoy not being bothered by information overload.

Share Performance: Gogo Inc and Iridium Communications

On Tuesday, Gogo, Inc.  fell 5% to $13.30 (GOGO has a 52 week trading range of $12.34 to $16.72 a share) for a market cap of $1.14 billion while Iridium Communications fell 1.55% to $8.91 (IRDM has a 52 week trading range of $5.25 to $9.51 a share) for a market cap of $682.45 million plus IRDM is up 41.6% since the start of the year, down 6.5% over the past year and down 11.1% over the past five years: 

For technicians, here is a quick look at the latest technical charts for Gogo, Inc. and Iridium Communications:

The Bottom Line. Of course, one can argue that in-flight wifi is still in its infancy, just like satellite mobile service from Iridium Communications was more than a decade ago, and could still take off. With that said, investors still need to remember what initially happened to Iridium as history does tend to repeat itself.