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January 14, 2011

Boingo Wireless Files for Public Offering

Boingo Wireless gives us a peek under the kimono: It's rare to get hard, audited, under-threat-of-government-rules numbers in the Wi-Fi hotspot industry. Now we have some. Boingo fired up its operations in 2001, and has taken over nine years to reach profitability under accounting (GAAP) rules. The firm has nearly $35m on hand, which means that on a non-GAAP basis, they've been putting money into the bank for years.

The firm took in $46m in revenue in the first nine months of 2009 ($66m for the year), and $59m in the first nine months of 2010. In 2010 up to 30 September, Boingo made $5.3m after tax and before accounting munges. Boingo's closest public competitor, iPass, saw $171m in revenue but a $13m loss in 2009; iPass's revenue has declined slightly in each of the last several quarters, grossing $117m in the first nine months of 2010, losing $3m on that. iPass offers a suite of roaming and remote-office services, as well as hotspot aggregation.

But what I'm most interested in, of course, is subscribers and sessions. Page 31 has the detail. The company has 191,000 monthly subscribers, nearly 10 percent of which cancel a subscription each month. Boingo charges $10/mo in the US for laptops and $8/mo for mobile. The international subscription is much higher, but there's no breakout between US and international accounts. A 24-hour pass is $8.

The filing reports 5.8 million sessions from Jan. to Sept. 2010 (all subsequent numbers I rely on use that period of time). The revenue from subscribers was $17m, making the average monthly subscription fee $7.50 ($17m/191K subscribers). That seems off and must be due to 30-day trial subscriptions and other promotions. It also indicates a low percentage of international subscribers, which would skew the number much higher.

Revenue from single-use sessions is $13m, which would indicate well over 150,000 yearly single purchases, most of which I'd suspect are in airports. Boingo operates paid Wi-Fi and most of the largest airports that charge for service; the company also gets fees for managing Wi-Fi at some airports.

The wholesale number is fairly staggering at $25m. This comes from outfits that resell Boingo's service under their own name (so-called "white label" service), and mobile carriers like Verizon. Boingo, without mentioning Verizon, attributes $3m in this period from "a mid-2009" acquired wholesale customers. Verizon is providing a reasonable, but not substantial amount of wholesale revenue.

The figures show for-fee Wi-Fi to be much more robust than I'd suspected. Many other firms have come and gone trying to make money selling Wi-Fi as aggregators, airport operators, and other incarnations. Wayport was bought by AT&T, and the majority of AT&T's Wi-Fi is now at venues that charge nothing for the privilege.

The challenge for Boingo is to continue this expansion. Mobile service must be a large component of its growth based on average subscription price, and the clear necessity for mobile users to have easy mobile access. AT&T certainly gave Boingo a gift by switching from unlimited 3G plans for new subscribers as of last June to metered service plans. At $25/mo for 2GB with a smartphone or slate, and $10/GB for overage, an $8/mo hotspot plans sounds positively cheap as a cost-conservation measure.

Boingo will trade under WIFI on NASDAQ, a move that strikes me as slightly odd since the firm doesn't own the trademark to that. Perhaps stock tickers are exempt from that issue.

Disclaimer: None of the analysis in this post is intended as advice on whether or when to purchase or sell Boingo stock. I am not a stock analyst nor trader. I own no shares in Boingo and have no intent to buy shares.

1 Comment

Boingo has done an incredible job of aggregating their network and adapting as they went along. They have a great team and many of them have been their from the beginning. All that said, I'm not sure how they can continue to grow with their current model.

When we first started building a network eleven years ago, the goal was to get money out of the pockets of the users sitting in our hotspots. As time has moved on, we are now approaching more of a traditional broadcast media model where the service is sponsored through advertising or provided by the venue. But it will all move to some form where the user isn't having to reach into his pocket to pay for the service.

There is still a need for aggregators but it is fairly easy to find a free service just about anywhere in the world so the user isn't having to fork out money for access. One of the exceptions is in the EU where anybody providing internet service to the public is an ISP and must keep six months history of usage. Some countries have even more stringent laws such as requiring user registration even if it is a free service. But it is all moving to free regardless as many new companies are popping up to provide services to match these needs such as FreeRunner in the UK.

Another large revenue source right now comes from carriers who are having a tough enough time handling the growth on their data networks and want to offload their 3G traffic to wifi whenever possible where it is a fraction of the cost. But they will eventually own that footprint either through building it themselves or buying a company that has built a big enough footprint like ATT did with Wayport.

In the end, aggregators like Boingo will be squeezed out and made obsolete as their subscriber fees and then their carrier fees dry up as aggregators don't own their footprint.

There are still several areas of growth in this business where companies can do well but any model that is dependent on getting money from the user is doomed.

Boingo has done a great job of adapting over time so let's see if they are able to do it yet again or if this is an attempt to bail out while the bailing is good.

[Editor's note: Rick Ehrlinspiel is the head of Surf and Sip, a hotspot operator that started up in 2000.-gf]

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