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Coverage Initiation: Global Eagle Entertainment
Value Line has initiated coverage of Global Eagle Entertainment (ENT) in its flagship product, The Value Line Investment Survey. The company, together with its consolidated subsidiaries, is a Delaware corporation headquartered in Westlake Village, California. Its business is focused on providing Wi-Fi Internet connectivity and content to the airline industry. Global Eagle is divided into two distinct operating segments. First, the Connectivity Service unit provides airline partners and their passengers Wi-Fi connectivity over Ku-band satellite transmissions. The company's connectivity offerings are delivered through its wholly owned subsidiary, Row 44, Inc. ("Row 44"), which combines specialized network equipment, media applications, and premium content services. These solutions allow airline passengers to access in-flight Internet, live television, on-demand content, shopping, and travel-related information. Second, it operates a content services arm, which selects, manages, and distributes wholly-owned and licensed media content, video, music programming, applications, and video games to the airline industry through its majority-owned subsidiary, Advanced Inflight Alliance AG ("AIA"), the business it acquired from Post Modern Edit, LLC, and related entities.
Prior to January 31, 2013, the company was known as Global Eagle Acquisition Corp. (“GEAC”), which was formed in February 2011 to effect a merger, capital stock exchange, asset acquisition/similar business combination with one or more businesses. Effective in the first quarter of 2013, and in conjunction with the business combination transaction in which GEAC acquired Row 44 and 86% of the issued and outstanding shares of AIA, GEAC changed the business's name from Global Eagle Acquisition Corp. to Global Eagle Entertainment Inc. In addition, in July 2013, Global Eagle purchased substantially all the assets of Post Modern Edit, LLC and its related companies.
At this juncture, the company’s main source of competition appears to be GoGo, Inc. (GOGO), which controls roughly 80% of the North American market (versus ENT’s 17%). However, overseas markets are essentially up for grabs at the moment. Furthermore, Global Eagle seems better-positioned to expand ahead, as it utilizes the latest satellite technology (Ku band). For now, GoGo relies primarily on older cellphone towers, making it more difficult for GOGO to expand throughout the rest of Asia and Europe. ENT has already inked a number of large contracts with worldwide satellite providers. These events augur well for Global Eagle, since only 13% of aircrafts are presently equipped with in-flight connectivity and content services, leaving it well-positioned to penetrate a market that studies suggest should double over the next three years. Therefore, the data indicates a nearly 30% annual growth rate. ENT’s install base currently sits at 500, with 400 more on order, further boosting its revenue outlook over future quarters. What’s more, late last year the company’s revenue mix began to shift toward wider-margin service-related offerings, highlighting a business that ought to reach profitability shortly.
Global Eagle’s aggressive acquisition philosophy, coupled with approximately $100 million in cash and a lack of debt, make it a solid buying candidate during 2014. Too, better earnings and cash flow should allow ENT to take advantage of emerging market opportunities.
Overall, Global Eagle looks set to capitalize on surging demand for in-flight connectivity and content, especially as air and sea travelers extend their use of mobile devices. The in-flight connectivity market is clearly still in the stages of its infancy, meaning capturing large chunks of market share and partnering up with travelling and communication providers is of the highest importance. Thus, Global Eagle’s contract wins, rapidly rising demand for its offerings, and a wide-open operating landscape have it poised for favorable sales and earnings gains moving forward.
All told, subscribers interested in this in-flight connectivity and content provider are advised to consult Value Line’s quarterly reports for Global Eagle Entertainment, as well as any supplemental reports and relevant articles as important news items arise.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.