June 26, 2008
Knobias Clip Report (06-27-2008)
By admin
Submitted By Knobias ClipReport
ZAGG: Gearing Up for the 3G iPhone Introduction
Handhelds have seen a transition from clunky and expensive to small and affordable communication devices with little else in terms of features, to now being a small computer with unlimited abilities and extraordinary prices.
Apple recently announced the continuation in that shift with their second generation iPhone which is set to hit the shelves on July 11th. The new device is somewhat smaller with 3G capabilities and many other upgrades, but that newer iPhone has somewhat of a smaller price. At $199, the new phone is half the original which had a price tag of $400. But that lower price doesn’t include the $40 activation fee, the higher monthly bill, and the $175 cancelation fee if the user would ever want to terminate their contract.
Needless to say, these devices are extremely valuable even if their sticker price isn’t extremely high. And with the higher value these devices have comes the need to insure and protect those devices. One small cap company provides an exceptionally protective casing which could be the cheapest way for investors to play the introduction of the second generation iPhone.
ZAGG Inc (ZAGG) is a consumer product company that specializes in custom designed protective coverings for electronic and hand held devices. Their main product, the invisibleSHIELD, which accounts for the majority of revenue, is a thin polyurethane film originally created for the military to protect the edge of helicopter blades.
“The invisibleSHIELD is available in over 2500 skews. They’re all different cuts and for different applications and will work in different industries. The invisibleSHIELD is an amazing product. The whole handheld and laptop industry is what we’re focused on,” said Robert Pedersen, CEO of ZAGG Inc.
This patent pending product is also starting to show some remarkable growth even with little in the way of marketing.
“Our growth and success comes from word of mouth,” noted Pedersen, CEO. “We haven’t done any mass marketing. As we get out into the main stream media more, big box stores, more internet and TV exposure, and other means of advertising, we’ll start to see the extremely big numbers.”
One of those marketing initiatives is a somewhat unconventional method but could have a huge payoff down the line. ZAGG entered into a partnership with POW! Entertainment through Brighton Partners. POW! Entertainment is owned by Stan Lee who created Spiderman, Incredible Hulk, X-Men and other comic book characters. Needless to say he has an extremely large following and has been immensely successful in creating popular superheroes.
Lee’s next project involves a full length animated film named The Legion of Five. For help with financing the development of the movie through the issuance of a small note, ZAGG will be repaid in a multitude of ways.
First, one of the characters in the group will be named ZAGG and have an invisible shield as one of his superhero powers. Basically the character has a direct correlation with the Company and its product and will become the Company’s mascot. ZAGG also will receive a 10% ownership in Brighton Partners. Brighton will own all the rights of the Legion of Five which include merchandise, movie rights, action figures, licensing fees, etc. The 10% ownership could become a lucrative source of revenue and brand/product awareness. And finally, the comic book based on the characters which will be released by Virgin Atlantic will have full page ads for the Company’s invisibleSHIELD product.
“We had some investors question the deal, but it wasn’t done with equity. It was done through a note which will be paid back in the very new future. The long term benefits will greatly outweigh its cost, especially considering the merchandising of the action figures and the mass advertising,” said Pederson.
Currently, the invisibleSHIELD is sold through many distribution channels. It was recently made available at Walmart.com and also in Europe at the Carphone Warehouse. Depending upon the performance on Wal-Mart’s website, the product could soon be introduced at the many physical locations throughout the US. The Carphone Warehouse account includes over 2200 stores. Just the initial channel stuff is enough to make sales numbers grow exponentially. The Company also will have 25 kiosks by the end of July at malls throughout the country while also operating its own online store.
These new channels will help the Company grow sales higher than the already fourfold increase experienced in the first quarter of this year. Net sales were $2.85 million compared to $798 thousand in the first quarter of 2007. Also contributing to the future growth is the new invisibleSHIELD available for the new 3G iPhone. Customers have been able to preorder the invisibleSHIELD for the new iPhone for over 3 weeks and have responded by placing over 50,000 orders so far. Shipping of the orders will begin on June 27th, two weeks prior to the iPhone launch.
With healthy margins in the 75% range, a growing number of distribution channels, the introduction of the new iPhone and the preorders, the historically higher sales in the 3rd and 4th quarter, and the potentially huge marketing and revenue opportunity associated with the Brighton partnership next summer, the name has plenty of catalysts that should spur growth to new highs. With that in mind, investors would certainly be wise to watch.
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