Earnings estimates have been falling for Boingo Wireless (WIFI) after the company reported its third quarter results back in November. The Zacks Consensus Estimate for both 2013 and 2014 have dropped significantly, sending it to a Zacks Rank #5 (Strong Sell).
While shares of Boingo Wireless have sold off a bit since the Q3 report, the stock still does not look cheap on a forward P/E basis. Investors should consider avoiding the stock until its earnings momentum improves.
Boingo Wireless provides individuals with access to the mobile Internet through high-speed, high-bandwidth Wi-Fi networks. It has more than 700,000 Wi-Fi locations, or hotspots, in over 100 countries at places like airports, hotels, coffee shops, shopping malls, arenas, stadiums and fast food restaurants.
Third Quarter Results
Boingo Wireless reported third quarter financial results back on November 7. Earnings per share came in at 1 cent, missing the Zacks Consensus Estimate of 2 cents. This was down from EPS of 7 cents in the same quarter in 2012.
Revenue increased 10% to $28.6 million, which was a bit below the consensus of $29.0 million. Despite decent revenue growth, expenses grew at a faster clip, thus hurting profitability. ‘Network Access’ and ‘Network Operations’ costs, for instance, each spiked 22%, while ‘Selling & Marketing’ expenses jumped 28%.
Operating income plunged 81% to $784,000. After subtracting taxes and earnings attributable to non-controlling interests, Boingo made just $354,000 in the quarter, down from $2,777,000 in the same quarter last year. Year-to-date, the company has lost $1,166,000.
Estimates Falling
Following lackluster Q3 results, analysts revised their estimates meaningfully lower for Boingo Wireless. The Zacks Consensus Estimate for 2013 is now $-0.01, down from +$0.06 ninety days ago. The 2014 consensus has fallen from $0.13 to $0.03 over the same period.
You can see the steep drop in estimates in the company’s ‘Price & Consensus’ chart:
It is a Zacks Rank #5 (Strong Sell) stock.
Lofty Valuation
Shares of Boingo Wireless are down more than -12% since the Q3 report. But WIFI does not look like a value here with the stock trading at more than 200x 12-month forward earnings. Its price to tangible book value ratio of 2.4 is not as alarming, but it isn’t exactly in “deep value” territory either.
The Bottom Line
With falling earnings estimates and expensive valuation, investors should consider avoiding Boingo Wireless until its earnings momentum improves significantly.
Todd Bunton, CFA is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.
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