The chief executive at Boingo Wireless Inc. recently dubbed 2012 a “transition year” for the company. But with revenue guidance below analysts’ estimates for this year, investors seem leery of the transition.
During a Feb. 21 earnings call, David Hagan signaled that the Westwood company’s once-robust business from charging people to access its public Wi-Fi hot spots was slowing. Venues where Boingo installs its hot spots, such as airports and malls, increasingly have been requesting that Boingo provide a free, limited-access option to connect to the Internet.
The company reported fourth quarter net income of $1.1 million, down 42 percent from that same period a year earlier. But revenue for the quarter was up 8 percent to $28 million.
Boingo’s revised revenue guidance for fiscal 2013 was $110 million, and included a net loss of 4 cents a share for the coming quarter. The revenue projection was 6.8 percent below analysts’ estimates of $118 million.
Before announcing earnings Feb. 21, Boingo’s stock closed at $7.98. Since then, its shares have dropped steadily, closing Feb. 27 at $6.24 – a 23 percent drop for the week, making it the biggest loser on the LABJ stock index. (See page 22.)
Boingo charges consumers about $10 for a day of wireless Internet access at any of its hot spots in the United States. But now, airports, malls and the like are demanding tiered plans that stipulate Boingo give, say, 15 minutes for free at that location, and with limited bandwidth.
Under that scheme, Boingo would only be paid if a consumer needed at least a full day of nationwide access or greater bandwidth for data-heavy uses such as video conferencing.
Company executives acknowledged they have avoided free options in the past for fear it would cause too many people to avoid paying altogether. The numbers showed that worry to be well-founded.
“In the short term, the evolution of paid to tiered or free pricing has proven to be a revenue growth headwind for us,” Hagan said in the earnings call.
Charging customers for Internet access comprises almost 40 percent of Boingo’s revenue and has more favorable margins than other parts of the business. Boingo also makes money by selling ads on a log-in page and through deals with mobile carriers that need to move some smartphone and tablet users onto a Wi-Fi network.
The prospect of losing money from customers demanding free Wi-Fi has loomed over Boingo for some time; the disappointing earnings has only made those difficulties more pressing.