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Will 2Ku Installations Drive Gogo's (GOGO) Q4 Earnings?

Gogo Inc. GOGO is set to report fourth-quarter 2017 results on Feb 22. The company has a mixed record of earning surprises in the trailing four quarters with an average positive surprise of 0.01%.

Last quarter, the company reported a loss of 57 cents per share, which was wider than the Zacks Consensus Estimate of a loss of 51 cents as well as the year-ago quarter’s loss of 42 cents.

However, revenues increased 17% year over year to $173 million and beat the Zacks Consensus Estimate of $172 million.

Let's see how things are shaping up for this announcement.

Factors at Play

Gogo’s 2Ku service has been its chief growth driver. Gogo announced in mid-December that it has installed 2Ku — its in-flight connectivity service — in more than 500 aircrafts in 2017, which is within the guided range for 2017. Till October 2017, 2Ku service was installed in 322 aircrafts. In October alone, the company installed it in 76 aircrafts.

In December, Gogo announced that the installation time for 2Ku was shortened to 30 hours from 36 hours. We note that the company’s lower bandwidth cost structure coupled with continuous improvement in installation rate is helping it to gain traction in the market.

Additionally, the company’s partnership with Delta to provide free in-flight messaging is expected to increase passenger engagement and thereby accelerate take rates in the quarter.

The company’s launch of Gogo Vision Touch is also a positive.  In addition, the launch of AVANCE platform will boost its Business Aviation segment.

We believe the increasing adoption rate of Gogo’s 2Ku technology will be instrumental in driving top-line growth for the company. However, despite its strength, Gogo faces stiff competition from peers like ViaSat Inc. VSAT.

Additionally, higher operating expenses due to increase in investment in engineering, design and development as well as sales and marketing pose concerns.

Gogo Inc. Price and EPS Surprise

Gogo Inc. Price and EPS Surprise | Gogo Inc. Quote

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What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or #3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

We believe that Gogo is likely to deliver a positive earnings surprise in the fourth quarter due to a favorable combination of a Zacks Rank #3 and an Earnings ESP  of +2.80%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks That Warrant a Look

Here are a couple of companies that you may want to consider as our model shows that these have the right combination of elements, a positive Earnings ESP and a favorable Zacks Rank, to deliver an earnings beat in their upcoming release:

Castlight Health CSLT has an Earnings ESP of +7.69% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

MINDBODY MB has an Earnings ESP of +50.00% and a Zacks Rank #3.

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Castlight Health, inc. (CSLT) : Free Stock Analysis Report
 
MINDBODY, Inc. (MB) : Free Stock Analysis Report
 
ViaSat, Inc. (VSAT) : Free Stock Analysis Report
 
Gogo Inc. (GOGO) : Free Stock Analysis Report
 
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