Key Points
Gogo’s 10-year spectrum renewal gives investors a valuable asset to weigh.
Short sellers got squeezed as Gogo shares surged on Friday.
Spikes like this often fade, even when the catalyst is real.
Every so often a stock does something that makes me set my coffee down. On Friday, in-flight connectivity provider Gogo (NASDAQ:GOGO) jumped as much as 68.7% higher despite a weak earnings report. Sometimes, other news can override the usual market-moving headlines.
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Why Gogo's 800 MHz spectrum license matters to investors
The early action made sense. Gogo's stock opened Friday at $2.22 per share, just below Thursday's closing price of $2.24. If anything, that seemed like a mild wrist-slap after missing Wall Street's expectations across the board.
Revenue fell 5% year-over-year to $213.2 million, well short of Wall Street's $229.6 million consensus. On the bottom line, a net loss of $0.02 per share missed the analyst community's expectations of about $0.08 in positive earnings per share.
But the story changed shortly after the opening bell as Gogo investors digested additional information in the earnings release.
- Gogo's lenders agreed to push the maturity of their loans out to October 2030, and the company committed to $75.0 million in principal payments through 2027. Not necessarily great news, since the refinancing occurred during a period of high interest rates, but financial stability is always welcome.
- And then there's the big hitter. Gogo's exclusive 4 MHz of 800 MHz air-to-ground spectrum license got a 10-year renewal from the Federal Communications Commission. The company immediately hired banking advisors to figure out what that slice is worth. The ideas on the table range from controlling drones to direct-to-device phone service or even a straight-up spectrum sale.
The refinancing and the license renewal inspired an early-morning run, and then short-sellers felt the squeeze.
Can Gogo stock keep climbing?
Despite the massive jump, Gogo stock still trades far below its 52-week high of $7.94, and the five-year chart gives me nightmares.
Even if the 10-year license extension turns out to be a game-changer, Gogo has a lot of work to do. The core business is shrinking fast as air-to-ground customers migrate to satellite-based services -- and perhaps not always from Gogo's Galileo line. Moreover, I'm not sure the short-squeeze portion of Friday's surge will last long. Those spikes tend to fade quickly, with or without real news behind the original catalyst.
This stock trades at bargain-bin multiples for good reason.
Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.