Boingo Wireless ( Nasdaq - WIFI ) -- Captain Data Crunch

Boingo Wireless (WIFI $9.50) reported excellent Q4 results, higher than what we estimated.  Earnings (excluding the customary non cash charges) increased 5x to $.10 a share.  Sales widened by 21% to $25.9 million.  Boingo is the leading provider of private WIFI networks.  The company also sells subscriptions to individuals so they can access the company's affiliates around the world.  Those deals price out around $8-$10 a month and let mobile phone, tablet, and laptop users access more than 425,000 WIFI hotspots that otherwise would be off-limits because they required a password.  Revenues are divided about 50%-50%.  The private network market is growing faster at the moment.  Boingo is building WIFI networks for restaurant chains, arenas, shopping malls, and other consumer oriented facilities.  Every deal is different.  Boingo itself collects income based on traffic volume.  Sometimes the facility pays the freight, allowing its customers to use the WIFI without charge.  Other times users have to pay a fee of some kind.

Growth is accelerating because the cell phone companies can't keep up with demand.  Back in the old days most operators thought they were minting money by selling unlimited data access at $25 a month.  Now that video downloads are becoming more widespread, that equation no longer solves.  Limits are being applied, driving customers to free non-cell WIFI networks.  Those networks aren't actually free, of course.  Starbucks or whatever provider it is has to pay Boingo for the cost of delivering the goods, plus a profit.  But the incremental cost is acceptable and the trend is likely to continue.

Bigger gains are possible if the mobile carriers sign explicit deals with Boingo.  Up to this point it's all been pretty loosey goosey.  But most cell phone companies are getting swamped with data traffic.  Deep packet inspection companies like Allot Communications are enabling them to implement more profitable pricing models.  Boingo is likely to benefit, as well, by keeping the networks going.

We estimate 2012 fully taxed income will reach $.35-$.40 a share.  After that, it will be interesting to see.  Further gains of some magnitude are virtually certain.  But the company still has some cards to play before it hits the big time.  Boingo is the industry leader, so the potential looks good.  In 2-3 years income could attain $.75 a share. Applying a P/E multiple of 20x suggest a target price of $15 a share.  Boingo is a small company with a key position in a gigantic industry.  A substantially higher result is possible.

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Boingo Wireless ( Nasdaq - WIFI ) -- In a Hot Spot

Boingo Wireless (WIFI $8.75) is a leading provider of Wi-Fi software and services that connect mobile devices to the Internet.  The company installs and manages complete "venue" systems, like in airport terminals, which are available to the public on a per diem basis.  Boingo also sells monthly subscriptions which provide access to a worldwide network of more than 400,000 hotspots.  Revenues additionally include advertising income, usually connected with venue systems.  Boingo currently operates more than 80 venue projects.  Demand for Wi-Fi systems is rising due to surging data traffic on mobile phone networks.  Wi-Fi provides a less expensive alternative in many cases.  It also simply provides access during peak periods.  Cell networks often get bogged down, particularly at concerts, sports events, transportation hubs, and shopping malls.

Venue deals are characterized by revenue sharing contracts.  Some sites provide free access as a marketing tool.  But Boingo still earns transaction fees and other payments on those deals.  Traditionally users have paid modest fees to get on a Wi-Fi network, airport terminals being the most prevalent example.  The popularity of mobile devices is causing demand to accelerate.  And Boingo has shifted its focus, accordingly.  Targets include stadiums, arenas, malls, shopping centers, and quick service restaurant chains.  International locations, which currently account for 15% of revenue, provide further opportunity.  Revenues already are climbing at a brisk pace and promise to keep rising as more locations are added and existing sites handle greater amounts of traffic.

Margins are likely to widen as recurring revenue builds up.  Revenues are poised to advance only 16% in 2011 despite a sharp improvement in venue related (wholesale) business.  Individual subscriptions have declined with the advent of less expensive cellular contracts.  But the churn rate on that segment has diminished, preventing a significant fall-off in revenue.  Still, the venue segment will drive performance over the next several years.  Boingo typically pays to install those systems and then earns a share of the revenue stream over multi-year contracts.  Those deals typically are renewed on favorable terms.  As the installed base rises profitability is likely to expand.  We estimate 2012 revenues will improve 24% to $115 million to provide a 40% increase in non-GAAP earnings to $.35 a share.

In 2-3 years revenues could reach $175 million.  Earnings could attain $.60 a share.  Boingo pays an unusually steep tax rate.  If that levy is reduced to 35% income could benefit by an additional $.05 a share.  Applying a P/E multiple of 25x suggests a target price of $15 a share, potential appreciation of 70% from the current quote.

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