Why Gogo Inc Stock Performed So Poorly in 2014

The Gogo logo. Source: Gogo.

Heading into 2014, shareholders of Gogo had high hopes for the New Year. After hitting a bottom two months after the company's IPO, Gogo stuck surged over 140% in the last four months of the year after reporting stronger-than-expected revenue for the company's third quarter.

Alas, the year was largely a disappointing one for investors. Shares of the company sit 33% lower than they did one year ago. Let's dig into the three main catalysts for that downward movement, and if any of them should be cause for real concern.

Event No. 1: Disappointing guidanceLeading up to Gogo's fourth quarter earnings call, investors bid shares up expecting a repeat performance of the company's previous quarterly report. But while the company beat on both top and bottom lines, management's guidance left something to be desired.

Officially, analysts were expecting Gogo to post revenue of $414 million for 2014, and the company guided between $400 and $422 million. Those two seem awfully close, so it might seem odd that Gogo's stock fell 30% in the month following the report.

But that's where Gogo stock, in particular, needs to be examined. As a newly minted public company with a small market cap and as-of-yet unprofitable business model, Gogo stock experiences large swings on news that -- for many other companies -- wouldn't be of note.

Currently, over 25% ofshares are sold short -- and much has been the case throughout the year. The downward pressure on the company was likely a result of shorts initiating their positions following the weaker-than-hoped-for guidance.

Event No. 2: A new competitorThe real hit to Gogo stock came in late April, when AT&T announced it planned on entering the in-flight connectivity game. Shares of Gogo lost 28% of their value in one day alone!

With $2.5 billion in cash on hand, versus Gogo's paltry $240 million, AT&T could use its war chest, and leverage its existing network infrastructure, to price Gogo right out of the in-flight connectivity field. AT&T management stated that it would offer 4G LTE connectivity on flights starting as early as 2015.

Event No. 3: AT&T backs out, earnings do wellBut if there was a silver lining for Gogo stock in 2014, it came on November 10. For starters, AT&T announced it was abandoning its plans to enter Gogo's niche. Apparently, it turns out, the company thought it could invest its money more effectively in international markets than in-flight connectivity.

That good news was followed up by a quarterly report that showed 22% growth in revenue. While commercial aviation in North America accounted for roughly two-thirds of revenue, it brought in just $5.5 million in profits. Business Aviation, on the other hand, added $15 million in profits -- even though it's revenues were far smaller.

Of most importance for long-term shareholders, the company continued to invest heavily in international connectivity through its Ku-Band satellite system.

The article Why Gogo Inc Stock Performed So Poorly in 2014 originally appeared on Fool.com.

Brian Stoffel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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