ZAGG: Merriman Curhan Ford Research Note
iPhones coming to RadioShack (RSH $17.74, not rated) stores — increases the revenue potential for ZAGG in 2010. ZAGG started shipping to RadioShack in August but RadioShack currently does not sell iPhones. In spite of that, RadioShack carries invisibleSHIELDs for iPhones and consistently sells out of them, based on our checks. However, starting in November, RadioShack will start selling iPhones — initially in a limited number of stores, and then in 2010, iPhones will roll out nationwide. We believe this should significantly improve the outlook for ZAGG sales at RadioShack. Our current projections for ZAGG include only $5M in sales from RadioShack stores in 2010, which we believe could reach $10-15M instead. For comparison, Best Buy (BBY $40.24, not rated) will generate an estimated $15M in sales in 2009.
· It appears that Apple (AAPL $194.34, not rated) may be designing a new iPhone version that will work on Verizon’s (VZ $29.56, not rated) network in 2010. According to a report by OTR Global (as referenced by Silicon Alley Insider and AppleInsider), Apple is currently designing a CDMA compatible iPhone that could potentially be used on Verizon’s network once Apple’s contract with AT&T (T $26.01; Not Rated) expires in 2010. This should further increase sales the iPhone, and drive sales of invisibleSHIELDs across all of ZAGG’s distribution channels such as zagg.com, Best Buy, RadioShack, Diamond Wireless stores and mall kiosks. Ultimately, we believe that iPhones will be sold by most major wireless operators in the U.S.
· High visibility into 3Q09 estimates. ZAGG reports 3Q09 results on Thursday November 12 after the market close, and our current estimates include a revenue increase of 5% Q/Q to $9.7M (up 41% Y/Y) and EPS of $0.05, flat Q/Q. Considering the strong Q/Q increase in iPhone sales (up 42% Q/Q) as reported by Apple, doubling of iPhone sales at Best Buy stores in their 2Q09 (ended August 30), first shipments into RadioShack stores in 3Q09 and expansion of the distribution with Carphone Warehouse and Media Mrkt in Europe, we believe that ZAGG’s 3Q09 results will exceed our expectations and our visibility into 4Q09 and 2010 improves significantly as well. Additionally, our 2010 estimates do not include any additional distribution announcements with U.S.-based wireless carriers and with Japanese retail/wireless partners, which are in the works.
· Upcoming catalysts. We believe ZAGG should see the following catalysts in the coming months: 1) the ramp of SKUs and stores with RadioShack, 2) the ZAGGskins launch in 4Q09, 3) the launch of the ZAGGbox device in January 2010, 4) a new distribution in Japan and 5) the first distribution with wireless carrier. The company was approved to list on NADAQ, with trading commencing on Tuesday November 10.
· Valuation remains compelling considering the growth rates and upside potential to estimates. Base on our 2010 estimates, the stock is trading at a P/E of 19.9x (FY10E). With earnings growth of 106% in 2009 and 36% in 2010, we believe that a 20-30x multiple is reasonable, which would imply a $6-9 share price; however, with room for further upside, the stock could exceed that range, in our view.
Source: Merriman Curhan Ford Research Note
Disclosure: LONG ZAGG and I’m an Advisor to ZAGG
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Radio shack running store inside Target
An employee of RadioShack’s Kiosk Operations Inc. unit working in an Atlanta Target store said Monday that RadioShack workers in that store and two others in the metropolitan area began handling Target’s mobile phone business last month. They wear black shirts instead of the red shirts normally worn by Target employees, and work within the electronics department but are dedicated to selling the phones and calling plans already in Target stores. Those include Verizon, T-Mobile, and AT&T phones and service plans, as well as various prepaid phones and calling cards.
Branded Bullseye Mobile Solutions, RadioShack employees are working at about 100 Target stores in California, Georgia, Illinois, Minnesota, New Jersey, Texas and Washington, according to the Minneapolis-St. Paul Business Journal.
Representatives for Target and RadioShack didn’t immediately respond to requests for comment, but the Business Journal said Target plans to expand the concept to all of its roughly 1,700 stores in 2010.
ZAGG Signs Partnership with Cricket Communications
http://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20091110005651&newsLang=en
$908,081 or $0.04 per fully diluted share for the quarter ended September 30, 2009, compared to net income of $889,743 or $0.05 per fully diluted share for the quarter ended September 30, 2008
42% increase in revenues for 18,000 growth in net income —some dillutive capital events yielding less per share– not sure this was the best time to miss on the bottom line with the advent of some substantial big box growth and every other company into clearly managing the cost side—-Not easy understand why the growth in revenue with nothing falling to the bottom line —Thought they would do more to keep ther margin concept alive —Stock gonna be down 20% to 25% but I guess that was in the cards –stock traded like it was going to disappoint.
Dont know or care much about the hype side untill they restore some credibility to the margin discussion so hope they are on message tomrrow
Felt like listening to the analyst meeting in NYC this week that margins were an issue as they just didnt hammer home a real confident message —-
Saw something in the 10Q about a loan to a company for some super hero rights but didnt get much further
Nice product like the company have to see what they do in the next year —might take a position if it is down big
Yes, basically the website sales were down almost $2m compared to last years Q3. So when you get rid of $2m in sales that garner 70% margins, its like slicing off 2-3c in EPS. Looks like the big box accounts are cannibalizing the website which makes sense when you think about it. Why go online and order, pay shipping, wait for days, and install the IS yourself when you can just to go a BBY buy it right there that day and have them install it. So I don’t see the Invisible Shield really gaining much traction back on the website, but….. people will go online and purchase ZAGGSkins. I know I just purchased a few this week. I believe ZAGGSkins will end up increasing the margins again.
Haven’t been able to get on ZAGG.com all morning. That certainly won’t help matters.
works for me
Very strange man. I just tried it again on 3 different browers (Safari, Opera, Firefox)… tried it both by typing in the URL and click through on Google… and I’m using a pretty new (6 months old) MacBook.
Each time, on each browser, and anyway I try, I get the error “server not responding” or “Connection closed by remote server” (depending on the browser). Yet I have no problem whatsoever accessing any other website.
Like I said… very strange…
Yeah thats strange.. I just ordered a ZAGGSkin ten minutes ago.
IC
Wow. I’m baffled. Just called my wife at work and asked her to try the site (she’s on a PC) and it connected fine. Yet, at the same time, I tried it on my mac, and still no luck. Doesn’t make any sense at all.
Call was not bad -as I had not listened before — A little odd in the delivery —HEY we are going to be really profitable because I just said so and you just wait and see. The Bravado is really OK with me as they have had lots of early success and confidence is what I wanted to hear— —What I cant say is that I have any feel for what the Gross Margins expectations should be. They were fairly clear that they would be sufficiently better to produce a minimum in EPS from 22 in 09 to at least 40 cents fully dilluted in 2010. 60 to 100 million in REV!!!! —I guess that means if they they have 100 million EPS would be way higher?? —– I can’t they have a handle on how much they may grow but they may grow really fast (did visit 4 Best Buys today and they really push the shield stuff –the two radio shacks not so much –at least not yet had the Black Berry skin but not much else —-the one guy did send me to the website). OK there is some scale benifit but not sure i know how to quantify that metric —they mentioned that with new all new revenue they would capture margin as revenue ramped and fixed costs grew at a slower rate but didnt give a lot of detail on that front —
I am trying to model this ramp in business —So zagg skins is the wild card in the website margins and I get that concept but I dont really have a feel for how much margins will improve with the expected growth in zagg skins and SPARQ Foam buds and others vs the logical further drop off in the sheild web site purchases. I would like to be able to quantify the reduction in raw material cost and then add in some scale equation but its not real clear how to quantify that data other than to bracket some best and worst caae scenerios
At 40 cents EPS diluted and Revs of 65 million can see *22 to 25 multiple so not bad bet under 6
Great post. ZAGGSkins will be a a 70-75% margin website sale. I think they will sell like hot cakes. I figure that the drop off in website sales year/year probably cost them a couple cents in EPS. and I believe they have a great chance of regaining margins now with ZAGGSkin launch. The other great thing about them is the dry application which takes about a minute to install versus 10-20min for invisible shield wet application. I’ve shown mine to hundreds of people and everyone loves it.
Merriman Downgrade to Neutral this morning
Guidance Captures Potential Upside from New Products and Distribution With Little Room for Error; Downgrading to Neutral
We are downgrading ZAGG to Neutral from Buy. The company maintained its FY09 guidance and introduced FY10 guidance that we believe is a possible but rather optimistic scenario. We believe that gross margins will improve in 4Q09 and that the company will experience high double digit growth in revenue and earnings in FY10 (35-45% range) driven by new products and distributions.
Management has executed well on many fronts; however, guidance already captures many of the potential positives from new initiatives and leaves little room for error, in our view. We lowered our estimates and target price range to $5-7 from $6-8, using a range of 20-25x P/E on our FY10 EPS estimate (growing 30%).