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Surviving Gogo In an AT&T World

Tickers in this article: AMZN CHTR GOGO S T TSLA VZ

NEW YORK ( TheStreet) -- Shares of in-flight Internet provider Gogo fell sharply after AT&T announced its intention to enter the in-flight Internet space. The greater surprise is that the announcement is a surprise at all. Were investors under the impression that Gogo would remain a monopoly player forever?

Emotions ran high as investors started Tuesday's trading session in full panic mode, driving shares to a low of $13.92 as of this writing. Investment decisions based on emotion are usually wrong and usually thinking things through and allowing the dust to settle outweighs anything lost because of hesitation.

We live in a connected world that increasingly wants to remain connected 24/7. This is evidenced by Gogo's explosive revenue increase from about $35 million three years ago to over $90 million per quarter currently. The company reported a 46% revenue increase in the last quarterly filing over the same period a year ago. Of course, this much growth will catch the eye of others.

GOGO Revenue (Quarterly) Chart

Short sellers certainly knew this day was coming. About one out of four shares are shorted based on the latest data. One could argue that Gogo wasn't profitable and that motivated short sellers. However, it's obvious to everyone, especially smart-money short sellers that demand for in-flight Internet access wasn't going away. Not generating a profit isn't enough of a motivator for short sellers to pile on deep, it takes more.

If failing to generate a significant profit was the only requirement for short sellers, Amazon would have higher short interest. Concern over future prospects, not past results is what Wall Street focuses on. Tesla Motors hasn't delivered an operational profit and its shares are heavily shorted, but it isn't the lack of profits, rather short sellers are focused on what they view as lack of share price appreciation potential in relation to the earnings prospects.

In other words, Tesla's future growth was already more than fully priced in and short sellers wanted to take advantage of it. In Gogo's case, short sellers knew it was only a matter of time before a large player would enter the space and cause a panic. Today was the realization of the short seller thesis.

For short sellers, the motivation to remain in the position has declined significantly and continues to fall precipitously. Short sellers also know Gogo's relatively small $1.2 billion market cap makes it an attractive take-over target for an AT&T competitor also wanting to enter the space, such as  Verizon , Sprint , Charter Communications , and other Internet providers. As Gogo's price declines, the company becomes increasingly attractive as a take-over candidate.

AT&T expects to enter late in 2015. Investors should anticipate a timely rollout, and not that it matters today, but I can't help thinking I wouldn't bet on it. For the record, I'm bullish on AT&T and believe it's a strong long-term dividend stock for most portfolios.