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Two More Not-So-Bullish Datapoints on ZAGG...
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Two More Not-So-Bullish Datapoints on ZAGG...

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Two More Not-So-Bullish Datapoints on ZAGG...

As a matter of practice, I make a concerted effort to keep an open
mind and let the facts and data inform my opinions rather than vice
versa (as some pundits/commentators/”analysts” seem to do). Seldom do I
encounter a “real” (i.e. not a clear fraud) company exhibiting so many
warning sign, both on a gross and net (i.e. with positive signs) basis
than ZAGG.

I’m not going to run down the entire list as its well documented by myself and several other astute analysts,
but I’d like to introduce what I think are two new exhibits that
support my thesis that the company is not doing nearly as well as
management and the longs would have you believe.



First, ZAGG’s performance in the 2012 Consumer Electronics Show “Last Gadget Standing” contest, wherein firm’s pay $500 to enter their wares into a contest open to public voting. Among the 60 entries, ZAGG had two – the ZAGGkeys Flex and the ZAGGfolio, neither of which received >1% of the 5,500-6,000 total votes, despite sending out a tweet to the co’s 33,000 followers to pump up its products in the contest.

While some of the competition is just entirely out of ZAGG’s league
by any/every measure, some of the products that made it to the semi-finals are hardly amazing. A good example is Perch,
a $9.95 device that sits in between your mobile device charter and the
wall outlet that “chirps” when you disconnect your device so you don’t
(or are less likely to) forget your charger. Not exactly a brilliant
innovation or technological achievement, but a good example of the sort
of product that consumers view as more interesting than ZAGG’s “premier”
products.

Second, I think the results from querying Google Insights for Search for Zagg, iFrogz, and, for comparison, Skullcandy should give those long the stock pause:

iFrogz, ZAGG, and Skullcandy Google Product search results from 2008-present:

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Just the chart:



iFrogz, ZAGG, and Skullcandy Google web search results from 2008-present:

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Just the chart:



Remember, up until the past week or two, these two firm’s had very
similar market capitalizations, in the ~$350 million range (ZAGG has
gotten beaten down fairly well since, and not for lack of good reason).

I think what we’re seeing here is at the very least evidence of
Skullcandy’s massive lead in terms of brand equity/loyalty versus Zagg
and iFrogz. Since both firms compete in fairly commoditized markets,
branding is extremely important to create (the impression of)
differentiated offerings. In the Google web search, Skullcandy is
turning up 10x the numbers of iFrogz, a company ZAGG bought 6 months ago for 1/3rd the market cap of Skullcandy. ZAGG expects iFrogz to do $60 million in revenue in 2011; Skullcandy did more than that just in q3 alone.

ZAGG’s margins may (for now) look more attractive than Skullcandy’s,
but I highly doubt they’ll remain intact for much longer given ZAGG’s
lack of brand equity in two highly commoditized and competitive markets,
headphones/earbuds and mobile device cases, extreme discounting even
for some of its most popular products, questionable management
decisions, and the other reasons myself and others have cited
previously.

Take from these two data points what you will, and remember:

CAVEAT EMPTOR



Jordan S. Terry

Founder & MD

Stone Street Advisors LLC





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