Zagg: I Was Dead Wrong
When I heard the news that Zagg was merging with Mophie, it was clear as day to me that this would be a powerhouse in the cellphone accessory space. I thought it would be unstoppable. My reasoning was that as phones get slimmer, they become more delicate and will have less battery life due to lack of battery space and limited advances in battery technology. “Of course people will need to protect and add additional storage to their phones, and Zagg is the go-to company” is what I thought. Now, I’m having a change of heart.
Typically, I make bull and bear cases on my hypothesis of where a business will be in 10 years or so. With Zagg, I didn’t consider where it would be in the future at all. Their last quarter was a huge disappointment. It made me glad I didn’t start a position, and certainly now that I’ve mulled over the business more. Looking back on it, I was dead wrong.
I think Zagg’s business will be toast in 10 years or less. My original bull thesis is actually right: Phones are getting slimmer and have less battery capacity. But that’s only right for now, not in the future. What about the future? What did I overlook? It’s easy: Phones from Apple and Samsung are becoming more and more durable every new iteration. The new iPhone screens are made out of ridiculously strong Ion-X Glass, as the Apple Watch Sport has. I have yet to scratch my Apple Watch Sport screen while knocking it up against any surface. The 2nd day of owning my iPhone 6s, it fell face-first 5 feet onto a metal grate, leaving two unnoticeable dings on the front glass. I imagine the next iPhone will have sapphire glass, as the Apple Watch does. Samsung’s phones also have strong glass screens and are virtually waterproof in any situation. Apple is following suit in the waterproofing department. In the future, consumers will be asking themselves: “Why should I buy a screen protector? Why do I need to buy a case, other than to protect the back-side? Why should I choose Zagg?”
Zagg also sells portable battery recharging solutions, and even a battery case now that it is acquiring Mophie. It appears that very soon, maybe within the next 5 years, the most popular cell phones will have wireless charging. Not the wireless charging where you lay your phone down on a charging base plugged into a wall, but literally walking into wireless charging zones where the entire air is charging your phone in your pocket.
Science fiction? Nope, here’s a video of it working right now:
http://youtu.be/7AFJeaYojhU (*Not recommending $WATT, just a visual aid)
This tech isn’t even being adopted on a small scale right now, but the demand for longer battery life will bring this to market much sooner than consumers currently believe. Technology evolves at ridiculous multiples.
“But Zagg doesn’t sell only screen protectors, phone cases, and batteries!” You’re right, it sells other accessories in terrible markets like tablet keyboards. Tablets are cool, but the market is so saturated that not even the best tablets sell well. Also, you can carry over most tablet keyboards to other tablets. They also speak highly of their audio business. I’m just going to be blatantly honest: It’s junk as far as quality is concerned. There is really no true IP here.
Zagg also relies heavily on retail stores for sales, and it is a large part of their strategy going forward, according to their investor presentation. As much as I write about how Amazon is killing industries, you should already know what I think about physical stores. When searching for screen protectors or cases on Amazon, a flood of products come to my eyes. Not one of them was under a Zagg subsidiary brand. In my opinion, this is a company that has lost the war on online retail. Consumers don’t care too much what the best screen protector is, but which is the cheapest. They are all of comparable quality anyway, and filled with buzzwords to describe them.
So, in short, I think this company is garbage as an investment. The phones themselves will cannibalize the accessory business. That’s the takeaway. In addition, Zagg depends on a dying retail business for sales. Zagg can’t figure out online. Zagg’s products aren’t compelling. You won’t catch me owning this stock. Ever. Gone before I’m gone, if you know what I mean.