Seeking Alpha

Matt James'  Instablog

Matt James
Send Message
Author has been investing for over a decade. Through exhaustive research, he believes he can uncover information that Wall Street misses.
View Matt James' Instablogs on:
  • Expanding Distribution: ZAGG Makes Deal With Walmart For Sam's Club Entry

    In my recent article "Apple Pure Play: ZAGG Posed For Another 400% Bull Run" I articulated 11 catalysts to why ZAGG (NASDAQ:ZAGG) is perfectly positioned in the smartphone and tablet revolution and how it will lead to a monster bull run. In my follow up article "Short and Distort Campaign on ZAGG: Fighting Ridiculous Rumors" I exposed most of the bear articles the last few years as a poorly run short and distort campaigns. Most of the bear arguments were easily refuted. In this article, I will highlight a new ZAGG development that some in New York City might not see yet. In the third point of the Apple (NASDAQ:AAPL) pure play article, I highlighted expansion of SKUs in retailers across the country as a main driver of revenue growth for ZAGG. In my fourth point, I predicted that ZAGG is about to enter Walmart Stores (NYSE:WMT) in the first or second quarter of 2012. Although not released to the public (and not published by ZAGG yet), channel checks have confirmed that ZAGG has made a deal with Walmart to enter Sam's Clubs across the country. Walmart has already placed orders and stocked its Sam's Clubs stores. This is not a small launch of a few SKUs that ZAGG normally employs but a rather large launch. At this random Sam's Club as shown below, there are 28 SKUs of various ZAGG Invisible Shields. It was taken on 4 February 2012.

    The Invisible Shield has prime visibility as it is displayed at eye level.

    Additionally, the Invisible Shield is displayed on the side aisle as well.

    The significance of this development is huge:
    1) There is no competition for ZAGG in Sam's Club for screen protectors.
    2) The bears argued that pricing would hurt ZAGG if it entered Walmart. If you look at the prices, there is only a 13 cent difference to Target prices.
    3) There are 609 Sam's Clubs in the United States
    4) ZAGG can expand other accessories in the keyboard, power, and audio categories. The accessories have higher average selling prices.
    5) We are at the beginning of the smartphone and tablet revolution.
    6) This is one step away from ZAGG expanding to all Walmart Stores.
    There are 2,913 Walmart Supercenters and 706 Walmart Discount Stores and 4,263 Walmart Stores internationally.
    7) Sam's Club employees stated that ZAGG has been selling Invisible Shields there since at least last September. Employees at the various stores said the Invisible Shield was a big seller. Other research has indicated that ZAGG might have started entering some Sam's Clubs as far back as the iFrogz acquisition. It is possible ZAGG does not want the competition to know the inroads it is making with Walmart.
    8) We also spotted Logitech (NASDAQ:LOGI) selling the iPad 2 Keyboard by ZAGG. It is selling for $59.98 at Sam's Club vs $99.99 everywhere else. ZAGG gets royalties from Logitech.

    The average investor can see that we are just starting the mobile revolution. Smartphones and tablets are taking over our lives. This is happening faster than the desktop computer revolution two decades ago. Wall Street knows this. What they often don't know is what they can't see in front of their own eyes. The average investor can walk into most retailers and see ZAGG is positioned at most point of sales. They can see SKU expansion. They can see in many of the major retailers, ZAGG has a monopoly on screen protection.

    In the short term, the markets can stay irrational. ZAGG is currently priced around $10 a share. A rational market (based on logic in my first article) should price ZAGG over $24 per share now and then $32 by the end of the year. This is a story of expanding distribution, owning patents, being the #1 selling brand, taking over the major points of sale, having the logistics to fill orders on time, and providing an essential product for one of the biggest technological revolutions of our time. As the mobile revolution continues to grow exponentially, ZAGG is a can't miss investment.

    Update: 9 Feb 11. I now know why ZAGG is keeping this a secret. CNBC reported today that Apple is talking with Sam's Clubs on opening mini-Apple stores inside (starting with 47 stores). ZAGG has Best Buy's mini-Apple stores covered. ZAGG has Target's mini-Apple stores covered (2012 launch). ZAGG is really proving it can take up the major points of sale.

    Disclosure: I am long ZAGG.

    Feb 08 9:26 PM | Link | 1 Comment
  • ZAGG severely undervalued, could double with Walmart Deal
     ZAGG's Friday 13.6% jump was based on the Craig Hallum research report stating extremely bullish news that ZAGG could be in talks with Wal-Mart after discussing with reps at CES 2012.  This is huge news for this small company.  First, a brief overview, ZAGG (Zealous about Great Gadgets) has had a promising history.  They have consistently grown revenue and earnings each year, mostly attributed to their Flagship product, the Invisible Shield.  ZAGG received a patent on wrapping electronic devices in film last summer and is currently in litigation with copycats.  They also hold a patent on the installation kit along with their manufacturer having a patent on producing the type of film.  Long term, this creates a huge market for ZAGG as long as they hold the patent.    

    Revenues
    2008: $19.7M
    2009: $38.3M
    2010: $76.1M
    2011: $175M (4th raised annual guidance set in Dec 11 by ZAGG)

    Earnings Per Share
    2008: 11 cents per share
    2009: 16 cents per share
    2010: 44 cents per share
    2011: 50 cents per share (projected)

    Not all of the 2011 earnings can be attributed to the Invisible shield alone.  In June 2011, ZAGG bought Ifrogz in a half cash & half stock deal.  Ifrogz is projected to have had $60M in revenues in 2011, half of which are attributable to ZAGG's numbers above.  Ifrogz specializes in audio and cases, with premium shelf space in Walmart.  Due to the Ifrogz acquisition, ZAGG marked up and depreciated Ifrogz inventory which impacted earnings by 9 cents per share in the 3rd quarter. 

    Zagg's stock price peaked last summer at $17 per share having run up from $6 earlier year in March.  Bears and shorts commented that ZAGG was a one trick pony and pointed to inventory buildup.  Even Jim Cramer in December was not bullish on the stock.  When looking at the numbers, however, a different story takes shape.  Inventory buildup doubled year over year as revenue more than doubled.  This is extremely bullish in retail.  As far as being a one tricky pony, ZAGG has continued to diversify their product line with ifrogz (audio line and cases). In April 2011, ZAGG entered into a license agreement for the ZAGGmate IPAD keyboard with Logitech.  ZAGG gets a royalty from each Logitech keyboard by ZAGG sold.  ZAGG had since expanded their keyboard line with the ZAGGfolio and ZAGGflex keys.  ZAGG has continued to sell the ZAGGsparq, their power accessory for any device with a USB. 

    Currently, ZAGG has derived all of its revenue from its website and their retail channels.  Best Buy, Target, Radioshack, Carphone warehouse and a handful of other retailers make up a large portion of their sales.  ZAGG has made recent in roads with deals with ATT, Sprint, Verizon, Cricket, and TMobile.  ZAGG has only just started to expand products in these channels, recently adding keyboards, ZAGGwipes, ZAGGfoam, and the ZAGGsparq.  They have also started to cross sell ifrogz products into these channels.  Moreover, in 2011, ZAGG opened ZAGG Europe in Shannon, Ireland, establishing a distribution and sales point. 

    Based on all of this, ZAGG was expected to earn around $240M in 2012, and earning 80 cents per share.  This is simply with organic growth of the channels now.  Based on Friday's closing share price, this puts ZAGG trading at 10x 2012 earnings despite growing revenue by 37% and earnings by 60% year over year.  This is extremely cheap by most standards.   

    What can be a huge cataylst for the stock though is the exciting news is that ZAGG could be about to enter Walmart.  Shorts and Bears have commented that ZAGG's products can easily be replicated.  They point to copycats on Amazon.  In reality though, the business is about shelf space.  Who can get their products to shelves of the major retailers and at the point of phone/tablet sales (phone carriers).  As previously discussed, ZAGG has become #1 in their fast growing industry by getting all of the premium shelf space, knocking out competitors.  Up until now, Walmart has displayed numerous competitors on their shelves.  As stated in ZAGG's last investor presentation, retailers typically would rather deal with larger companies due to payment terms, warranties, and order fulfillment.  ZAGG has spent the last 6 months working with Walmart on the ifrogz line where they sell over a hundrend thousand units a week.  If ZAGG goes into Walmart, they would lock in the largest retailer in the world and essentially knock out competition.  All competitors who have not been litigated already would be forced to work out of a tiny website or mini-stores on Amazon.  Talk about fighting for the scraps!  

    Up until now, BBY's relationship with ZAGG has kept this out of Walmart.  As Craig-Hallum pointed out though, with ZAGG's new line of HD Invisible Shields, this opens Walmart up.   Additionally, it positions the HD Shield as THE screen protector to buy for their expensive device.  There is only a marginal price difference.  Those that have not adopted to the invisible shield will have a strong incentive to do so on their current or next device. 

    During this revolution in smartphones and tablets that need screen protection,  ZAGG is a great play on this technological change the next few years.  With recent insider sales from the ifrogz owners on the exercise day, ZAGG is currently at a very attractive price for entry.  With analysts price target set at $20, there is plenty of room for this stock to run. 

    Disclosure: Author is now long ZAGG and plans to buy more.  Author rode the stock up from $2 to $8 in 2010 and now sees the signs for a similar run. 


    Jan 17 2:52 AM | Link | Comment!
Full index of posts »
Latest Followers

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.