One thing that marked the PC and Internet revolutions was the strength of their after-markets. Whether it was PC add-in hardware and software or websites, the market explosion was quickly followed by tons of opportunity from smaller players.
The device market hasn't worked out that way. There are no hardware add-ins -- it's an all-in sale. The software suite is fairly complete, and few app makers have yet scaled. The old "mobile website" technology of a few years ago actually imploded with the rise of the iPad -- one site now does it all.
This leaves investors picking through the bargain bins. Our Tom Payne has come up with three names -- Zagg (ZAGG), Skullcandy (SKUL), and Mitek (MITK) -- offering technical analysis of each, based partly on short positions, and noting at the end he has also put his money where his mouth is. (That's something I deeply respect, by the way -- Seeking Alpha readers have taught me that.)
Seen fundamentally, however, these are all wildly different businesses. Zagg makes covers, both slip-on and chemical coatings, with most of its sales going into the after-market. It gets lumped in with other small hardware companies. Skullcandy is a distributor of specialty headphones, so it gets lumped into the audio segment. Mitek provides software that lets you make deposits and pay bills by just taking pictures of the instrument involved -- it gets placed into the transactions and financial space.
Of those three businesses, I like Mitek best. The stock has been hammered by a dispute with USAA -- USAA claims it created the mobile deposit technology that Mitek's software takes advantage of -- but I smell settlement. These two companies are in wildly different businesses -- software and banking -- so even if Mitek did what's claimed, USAA is in no position to take that ball and run with it. At some point cooler heads will prevail.
Meanwhile, nearly every big bank and broker is advertising a version of the Mitek technology, from State Farm to Schwab (SCHW) to Bank of America (BAC). The two sides can settle their differences for mutual profit, with Mitek selling out to some larger firm, maybe a processor such as Visa (V) or MasterCard (MA).
The other two are in the fashion business, and we all know what that's like. Trade them, play with them for a few months or seasons -- but don't take your eye off them because when they're done, they're done.
I think it makes sense to look for other app industry winners, beyond existing software players, and I'm open to your ideas.
Disclosure: I am long SCHW.