Boingo Wireless (NasdaqGS: WIFI) is all dressed up for the ball, jitterbugging in white loafers while the competition coolly waltzes away with the belle of the ball.
Try as it might, the Wi-Fi hot spot provider has been slightly out of step since its founding in 2001.
Indeed, Boingo has racked up ~$63 million in losses and faces these ongoing investment risks:
Shelf Registration: Boingo recently cleared the way so it can sell millions of shares, posing looming dilution of current stockholders’ shares.
Insider Selling: Executives are selling company stock like mad, suggesting a lack of confidence in Boingo. The chief executive and chief financial officer alone have unloaded about 150,000 shares in the last four months. Five insider sales have occurred in the past few weeks.
Accelerating Competitive Risk: Free mobile Wi-Fi offered by airports, coffee shops, hotels and large telecom companies pose an ever-growing risk to Boingo’s business.
Nothing Special: Boingo depends on open-source software and unlicensed spectrum to provide Wi-Fi – both available to everyone.
Terrible Finances: Shareholders’ 2014 losses of $0.55 per share are expected to worsen to $0.77 per share this year.
Institutional Disdain: Top institutional firms ignore Boingo, as even insignificant institutions are selling out their Boingo positions.
Cushy Compensation: Despite investors’ horrible returns, Boingo executives hit multi-million dollar jackpots.
Excessive Complaints: Boingo suffers from extensive customer complaints reported on consumer complaints website
Boingo declined TheStreetSweeper’s request for comment, but investors may find other viewpoints here.
Meanwhile, let’s look at the reasons we’re convinced overvalued Boingo is poised to dance away current stockholders’ hard-earned money.
Many upset customers have logged complaints about Boingo on consumer complaints website complaintsboard.com, here. A few highlights:
** “When it comes to Boingo, it's way way worse than "accidental" charging.
I paid for their one-day pass, out of desperation since I usually don't give out my credit card details online, one year ago.
ONE YEAR AGO. Since then, I have clicked "Cancel" and closed down the GoBoingo! pop-up whenever it shows up. Since there was no setting for disabling the pop-ups (fishy fishy!), and since I had no intention of using the service ever again save for emergency, I went into my computer settings and made sure Boingo wouldn't automatically start up.
So you can imagine my surprise when, going over my account bills for the past three months - this would be about 10 months after originally using the Boingo "service" - I see four separate charges from Boingo Wireless.”
** “I have just discovered that I have been charged $9.95 on my credit card for 3 YEARS.
ONCE I used Boingo in an airport in Houston, TX. I had to think very hard to even remember this. I have been charged every month since that time.
When I called Boingo to discuss, they acted as if this was the first time they'd ever heard of such a ridiculous thing happening.”
**”Boingo is deceptive and makes fraudulent charges. Boingo deliberately conceals aspects of the "As you Go" $7.95 24-hr. access charge for web connection at U.S. hotspots.”
** “After signing up to use boingo wireless for one day at an airport, I continued to incur charges of $7.95 on my credit card bill. They claimed that I continued to use their service, which was false. This appears to be a common complaint. No one should use boingo wireless. Hopefully boingo.com will be held accountable.”
**” … they did the same thing to me and refused to refund the extra charges. I live in FL, but "Bogus" Boingo Wireless is based in South Santa Monica, California. I wrote the attorney general there and asked him to investigate Boingo business practices. I've also filed a complaint with the FL state attorney and the CA Better Business Bureau. That's not all, I am on a mission. I bought www.ihateboingo.com I am currently working on the website. Boingo needs to be exposed, they are conducting the same business practices that Blockbuster had attempted and looked where it took Blockbuster.”
Boingo’s business primarily revolves around “DAS.” DAS or Distributed Antenna System is an antenna network installed in convention centers, office buildings, etc. to access the wireless network at peak times. Competing venue-based options include small cells.
AT&T and Verizon are the DAS giants. AT&T annually installs hundreds of its systems in stadiums such as the Dallas Cowboys stadium, campuses, airports and other venues across the country.
Verizon used its own DAS recently at the Daytona International Speedway, as well as various football stadiums.
Here’s how CEO David Hagan described the way Boingo works in the DAS segment – a lengthy process he said is usually a 12-month cycle:
“We've all been to stadiums, where you can't do anything, right? You can't even get a text through. And so literally all these venues are getting built out. So our strategy is neutral host. We partner with the venue. And then we reach out to the carriers and trying to get all the carriers on to a venue.”
Meanwhile, DAS may be deployed by carriers themselves such as AT&T; by neutral host third-party providers (which sometimes pits carriers against third-parties vying for a venue, or carriers turning to the third-party to rollout DAS at that venue); or by building owners or managers.
Boingo offers Wi-Fi to Sprint customers in 35 airports, yet in the rapidly changing Wi-Fi world, agreements can go by the wayside. And, as Boingo notes in its filings (page 17), well-heeled partners can become competitors, and competitors like to snap up venues.
Boingo adds: “Some of our competitors have taken steps or may decide to more aggressively compete against us, particularly in the market for venue build-outs of Wi-Fi and DAS solutions.”
So, AT&T and numerous others are scooting over the DAS dance floor, pushing Boingo and friends out of the way with each step.
*Special: Competitive, Technological Risks
Other major competitive and technological concerns facing Boingo investors include:
*TECHNOLOGIES - Competing technologies such as 4G, WiMAX and Super Wi-Fi are gathering momentum to push out use of Wi-Fi, much like DVDs made video tapes obsolete.
*NOTHING UNIQUE - Boingo uses open-source software. Open source licensing terms could ultimately force Boingo to attempt to buy licenses, re-engineer its software or even discontinue operations.
Boingo also uses unlicensed spectrum to provide Wi-Fi. Everybody can use the same unlicensed spectrum.
*FREE, FREE, FREE - Perhaps the greatest near-term, ongoing risk to Boingo is this: Airports, coffee shops, hotels and other places give customers free mobile Wi-Fi. Telephone companies, too, sweeten their home broadband services by offering free mobile Wi-Fi. These practices are becoming more and more common, upping the debilitating risk to Boingo over time.
Those and other issues have clobbered another Wi-Fi hot spot company with similar revenues and losses, called Novatel Wireless (MIFI). TheStreetSweeper warned investors about Novatel in February, here, when the stock was $5. The stock has collapsed in half since then:
(Source: Yahoo Finance)
*Ditching: Insiders Just Sell Boingo
Boingo insiders are yelling, “Sell! Sell! Sell!”
Other than cheap option executions, not one executive has purchased one single share of company stock on the open market in months.
Selling frenzy participants include the chief executive officer, operations vice president and the chief financial officer.
CEO David Hagan is left with ~448,000 shares after dumping almost 100,000 shares since June. Also, Senior VP Operations Tom Tracey has dumped 12,500 shares since June, including 5,000 in recent weeks.
CFO Peter Hovenier has unloaded blocks of 10,000 shares at a time to dispose of more than half his shares since June, leaving him with just over 56,000 shares.
Take a look:
(Source: Nasdaq. Click to view entire insider trading list)
The graphic below shows Boingo’s unusually vigorous insider selling trend, depicted in red:
Insiders are selling even with the stock down nearly 3 bucks since August. The stock chart below reflects insiders apparently saying, “This is much less than the stock fetched weeks ago, but $7 to $8 is high enough for me.”
So, the executives and directors – the very people who know better than anyone about the company’s prospects - are rapidly selling company stock. That can’t be good news.
*Institutional Firms: Selling Out Positions
Third-tier and no-name institutions have shown far more interest in Boingo than first-or-second-tier firms.
And even these small institutional holders are beginning to race for the exits. At the end of June, institutions were selling out of Boingo stock at nearly three times the rate new positions were being established.
Graphics below depict sold-out positions versus new positions and show the exit of small firms:
So, that’s basically $16 million worth of “buy” signals weighed against $40 million worth of “sell” signals.
*Earnings Forecast: Down
Boingo earnings last year handed investors a $0.55 per share loss. And analysts – typically an extremely optimistic group - expect losses to worsen this year … to $0.68 per share.
Below is a graphic portrayal:
And Boingo earnings growth compares miserably to the industry. As the chart below shows, Boingo has gone negative, as opposed to the industry.
So, Boingo has performed poorly from investors’ viewpoint and analysts expect the performance to slip even more over the year.
The company itself expects nothing promising earnings-wise for the year. Boingo’s guidance is a loss of $0.69 to $0.77 per share.
*Key Numbers: Not Pretty
Those expectations are poor for good reason. The chart below shows how Boingo’s finances have generally weakened.
(Source: Company SEC filings)
Additionally, quarterly results are announced next month. Management has guided a slight upward tweak in revenue to $34.5 million to $36.5 million … But a quarterly net loss of $0.15 to $0.20 per share.
At first glimpse, Boingo’s cash almost offers comfort. But Securities and Exchange Commission filings show the company must attribute most of that cash improvement to tapping into its credit facility:
(Source: Company SEC filing)
*Executive Compensation: Warren Buffett’s “Effortless Money” Quote Applies
While Boingo has handed investors a bouquet of losses, executives have plucked up $7.2 million in compensation.
Not bad for generating $13.7 million in net losses the first half of this year.
Here’s a snapshot from the filing:
(Source: Company SEC filing)
Here’s a graphic showing the CEO’s compensation:
Indeed, a Warren Buffett quote springs to mind when we look at insider selling and executive compensation.
The multi-billionaire investor once warned, “Nothing sedates rationality like large doses of effortless money.”
*Looming: Secondary Offering
Talk about effortless money. Just a couple of weeks ago, Boingo positioned itself to sell up to $125 million worth of stock.
So another stock offering looms, threatening to dilute the stock currently owned by shareholders.
Along with the preceding issues casting an ugly shadow on this enchanting ball, the company dances amid an overvalued market cap, hideous margins and swooning returns:
(Source: Yahoo Finance)
As Mr. Buffett commented about trading speculative stocks, “The giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands.”
The ball is over, the clocks now have hands and those hands are ticking like mad. Boingo stock should soon crumple to a more realistic valuation of about $4.50 per share.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in WIFI and stand to profit on any future declines in the stock price.
* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected].