What's Good for Apple Is Good for ZAGG

by: Ian Cassel

ZAGG Inc (NASDAQ:ZAGG) has the best selling iPhone accessory at Best Buy (NYSE:BBY) and AT&T Wireless (NYSE:T) stores. The Wall Street Journal reported this week that a Verizon (NYSE:VZ) ready iPhone will launch in Q1 2011. A Verizon iPhone will not only add tremendous momentum in iPhone sales but also ZAGG’s invisibleSHIELD sales. At the end of Q2 2010, Verizon Wireless had 92 million subscribers beating out AT&T Wireless 90 million. In a survey taken in September of current iPhone customers, Credit Suisse found out the following:
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Credit Suisse also found that over 8 million Verizon Wireless subscribers would likely buy the new Verizon enabled iPhone in the first 12 months. It doesn’t matter if AT&T subscribers leave and go to Verizon, as that can only help ZAGG sales as they ditch their old phones and buy new ones. The great thing about ZAGG is that they are carrier agnostic, product agnostic, and manufacturer agnostic. It doesn’t matter if iPhone gained 200 basis points against Research in Motion (RIMM) in market share. As long as the market for stuff with big touch screens expands, ZAGG wins.

Now getting back to Verizon, the next logical step would be for Verizon Wireless stores to start carrying ZAGG accessories like AT&T Wireless did starting this past July. Analysts project that Best Buy is a $20-30 million annual account for ZAGG, and that AT&T Wireless could be of equal size as that partnership matures. A Verizon Wireless retail account would likely add a similar if not greater contribution. It is not “if” but “when” does ZAGG get this big account, and after that Sprint (NYSE:S) and T-Mobile (OTCQX:DTEGY) will likely follow. It may not happen in this exact order but you get my point. These domestic wireless retail accounts probably represent $100 million in annual business to ZAGG, and these are just domestic accounts. We haven’t started talking about international channels.

About three weeks ago when ZAGG was at $4 I wrote this article about why I thought it would head to $5-6 in the near term which it did with ease. With a Verizon iPhone likely in early 2011, I think this provides a catalyst that could keep the momentum going. ZAGG will report Q3 results most likely around November 10th. I would expect a positive report from the company which could push the stock to a new 52 week high ($7+). Northland Securities also initiated coverage this week with a $7.50 price target which you can view here.

Disclosure: Author long ZAGG