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I'm Guessing Kate Upton Isn't Cheap. Skullcandy The Long Term Potential.

|Includes:Skullcandy (SKUL)

Yet Skullcandy have got the lady onboard with a multi-year contract. So my guess is that Skullcandy is doing everything they can to promote the name more than ever. Recently there has been some ideas on how they will fail simply because of the CFO leaving and product strength not being considered strong enough to tackle a very large market.I'm going to disagree and say that its going to be a long position.

Growth & Competition
2006 net sales were $9.1m, 2011 net sales were $232.5m, that's a 91% annual growth rate right there. So even through the economic crisis, the worst part of it, they still manage to gain more and more traction in the market place. Its simple, you may not be able to afford the latest mp3 player but you can sure enough buy a set of earphones/headphones that look like a piece of modern "chic" art. I love the headphones personally, but I wouldn't get attached to the brand name due to the obvious trading reasons. They started the main trend of bright colourful and artistic headphones and have held a strong market share. The new dominance of Dre Beats headphones can't be denied as being a threat, along with the SMSby50cent headphones which will no doubt put a dent in the market for the time being. The difference is the 2 headphone makers are 'right' now, they are a fashion symbol, the people that Skullcandy advertise to and aim at are mostly extreme sports lovers and participators. I did motocross for a couple of years, along with bmx, downhill and anything in general that gave me an adrenaline buzz, one thing I know for sure is that this market place dislikes the mass market, the fashion set by divas and pop stars. So the current trend doesn't really matter as this audience pay little attention to it. If the product is advertised in say a motocross or surfing magazine it is then certified to be a respectable item to purchase and own within your prefered sport.

Mass Sponsorship
This brings me to the sponsorship program they have at Skullcandy, I mean they are approaching the same level as Redbull for extreme sports sponsors. Skullcandy now sponsor many shows such as the Maloof money cup, they sponser motocross teams, bmx riders and skateboarders, heaps more! The new face of the model crew at Skullcandy being Kate Upton just further backs up the idea behind trying to branch out and get a bigger audience. This is all for the US as well, Europe still needs to be tackled fully, which is in the works now going by their 10-K Form. So alongside mass sponsorship and news of 10 new premium headphones being in the pipeline (25 models in total currently), patents galore for their popular models and the ownership of 2XL and Astro gaming headphones means that they are taking the headphone/earphone market by storm, not setting a season of trends or fashion. They are considering ways to grow with the products they offer but also incorporate themselves into different areas such as having apps for iOS (800,000 downloads) and Android (70,000 downloads).

Now the expansion into the Global market will obviously put a dent into a quarter earnings but the fact is the growth is possible and the net sales will increase. Their presence online, in print and media means they aren't coasting and relying on their sponsored DJs, Athletes and models to sell the product, they are still going to work in the exec meetings. The cost of contracts, production and expansion will take a toll on the company but the risk of growth being hurt due to unforseen circumstances is minimal. It's hard to get bad press on headphones, besides with the current market they are aiming at they wouldn't care anyway.

Now Skullcandy has a good selling strategy, it's order how many you need with no contracts. With 10% of sales coming from Best Buy and Target on a no contract basis it limits the problems of shops shutting down or losing customers and the many other problems that are fast arising with the box shop strategies. With the news on Best Buy shutting stores and going more mobile last week its clear that the idea is a brilliant move. Get contracts for the names to represent the company and just allow orders to be on a requirement basis, granted the security of the contracts will be missing but it will also then allow to offer exclusivity to other various companies instead of focusing on one which may or may not have poor overall quarters. Granted the CFO resigned and as of tomorrow will no longer be there, but the bigger picture is that he didn't leave on bad terms or that something was not right, he left to pursue other opportunities, yet still remain with the company until April 1st (today) and retain his 10,000 shares in Skullcandy now to me that's a sign of positivity and the 7% drop on the CFO resignation news was over the top. As of Friday close Skullcandy was sitting at a pretty strong resistance of $16.00 the volume was average but the RSI and MACD were bullish. It will be interesting to see tomorrow if any effects will take place on the price as Mitch Edwards will officially be no longer part of the Skullcandy team. It's a long way to go before it hits the IPO price of $20 but I have no doubt it will reach that price again. Theres too much growth potential left and also a lot of work still taking place within the company to consider it deadmeat.

Overall I think the company is doing a lot for the long run, they don't consider themselves as a trend of fashion setter but a fully fledged company who are trying to branch out into different areas and markets, also looking into aggressive expansion into the Global market. They acknowledge the factors that will be associated with all of the above but continually go about it the right way. Sure Kate Upton is nice on the eyes and we probably wouldn't even notice the headphones she has but it's the out of the box mentality they have had from day one that makes me bullish for the long-term about this company.

I currently do not have a position in $SKUL Skullcandy but will be monitoring for the best opportunity to place a position.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SKUL over the next 72 hours.

Stocks: SKUL