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Best Buy and ZAGG A Match Made In Heaven.

|Includes:BBY, TGT, ZAGG Inc (ZAGG)


YTD ZAGG has risen from $0.90 to a high of $7.45. I made my initial investment in ZAGG at $0.60 and bought it heavily up to $1.00 late last fall. The rise has been historic and meteoric but for good reason. The company’s flag ship product, Invisible Shield, has been selling like hotcakes ever since Best Buy (NYSE:BBY) made it a priority to “Shield” every phone it sells.   12 Months ago BBY had 3 SKU’s in 300 stores, and today they have 30+ SKU’s in all 1000+ stores.   Expectations are that BBY will carry 50+ SKU’s by year end. Best Buy plans to open 40 stand alone Best Buy mobile stores this year in hopes of increasing its US mobile phone market share from 3% to 15%.  At that level SKU count with medium sell through, it is not unrealistic to see BBY contributing $20 Million annually by year end. It seems I’m not alone in my prediction, I just see it getting there much faster:
  • Best Buy’s revenue contribution for ZAGG could reach $27M per year over the next 3-5 years, in our view. Best Buy did not provide a time frame for its 15% market share target; however, 15% of U.S. mobile unit sales would equate to 54M units sold (360M in the U.S. sold per year). If we assume that ZAGG gets a mere 5% attachment rate (which we believe is very conservative), that would imply 2.7M invisible- SHIELD unit sales at $10 to ZAGG ($20 retail price), which would imply $27M in revenue for ZAGG per year from Best Buy stores alone. *Merriman Curhan Ford 6/26/2009
CarPhone Warehouse in Europe, a partner of Best Buy, is also selling ZAGG product in 1000 stores which is expected to increase to 2000+ by the end of the year. Target started Selling ZAGG product in June, approximately 4-5 SKU’s in 1300 Stores. Investors are still waiting for another big box retailer which the company said to expect shortly. 
POPS (SKU x Retail Locations) 12 months ago --> 1200 BBY + 2800 Car Phone = 4,000 POPS*
POPS Today --> 30,000 BBY + 6500 TGT + 10,000 CarPhone Warehouse = 46,500 POPS*
*My estimates
The amount of big box retail POPS over the last 12 months have gone up roughly 10 times. I’m not saying that revenue from big box will increase at the same clip but I believe there will be a very significant increase throughout the rest of the year. With BBY, TGT, CarPhone, and a new big box retailer adding SKU’s throughout the fall, big box sales should continue to grow at an impressive rate. 
ZAGG is currently trading at 30x FY 09’ Guidance of $0.20 EPS. This may seem expensive at first glance, but with accelerated big box distribution, launch, and new product launches scheduled this Fall/Winter, I expect the company to continue its upward momentum. As we head into September analysts will be posting revised (probably upward) estimates for 2010 and the stock will start to trade off those forward projections. What is a stock worth that can grow net income 100% yr/yr during one of the worst economic climates since 1929? 
Disclosure: LONG ZAGG.  I'm also a paid consultant to ZAGG from 12/08-08/09.  I also purchased in the open market 300,000 shares at a $1.21 avg. 


Stocks: ZAGG, BBY, TGT