It Would Take an Atomic Bomb to Stop This Firm
ZAGG (NASDAQ: ZAGG) is quite confident about its future.
When asked whether the company's business model is sustainable, ZAGG co-founder and CEO Robert G. Pedersen II replied, "I guess the question is, 'Is the smartphone and tablet market sustainable?' because we are joined at the hip with that industry, which is a phenomenon and continues to expand."
"It is forecasted that there will be over 250 million iPads out there in the next three years," he told Benzinga. "At this point there has only been a fraction of those that have been made. There's an enormous market just with Apple (NASDAQ: AAPL). And because Apple is the leader right now with the iPad, of course, we're close with Apple and Apple consumers."
But as a company, Pedersen said that ZAGG is agnostic. "We don't really care who the leader is in the mobile or tablet space. We are the accessories provider, and we just develop the most innovative and high-quality products for the consumers that the consumers need. As long as we come up with the right solution that consumers are looking for -- and we're innovative -- we're talking about a long-lasting opportunity here."
Considering the fact that ZAGG's success is so closely tied to the smartphone and tablet market, I asked Pedersen how the company might adapt in the event that the smartphone market tanked.
"That's an interesting scenario," he said. "It's kind of like, 'What if the world got bombed by an atomic explosion?' At this point, really, it's an unlimited market. It's a $60 billion industry and we have a small portion of that. In the United States, our market share is growing. If you just look at what's forecasted in terms of growth for the next three years, if we didn't even expand our SKUs or expand our distribution, just maintaining and keeping up with the growth of the smartphone and tablet phenomenon that's going on, we would still have nice growth."
"The reality is that, at the same time, we are expanding our SKUs, we are expanding our distribution, and we're going global," Pedersen added. "This is the right place and the right industry to be in."
Still, Pedersen said that in a worst-case scenario, "if nobody wanted to buy smartphones and nobody wanted to buy tablets anymore, we could take our InvisibleSHIELD line and start focusing on other channels."
What are these "other channels" that ZAGG would focus on?
"We could start doing the shield for kitchen products or sporting goods," said Pedersen. "There's a lot of other industries we could tackle."
"But this is where we are," Pedersen continued. "This is where we're integrated. We're in RadioShack (NYSE: RSH). We're in Best Buy (NYSE: BBY) in a big way. We're in Target (NYSE: TGT) and getting bigger in Target. We're getting heavily into AT&T (NYSE: T), Sprint (NYSE: S), T-Mobile and Verizon (NYSE: VZ). And then on an international basis as well. I think we're well positioned for the growth that's happening and will continue happening over the next few years."
A Cash-Producing Company?
"It was a record quarter -- over 100% revenue growth," Pedersen said of ZAGG's first-quarter results. "The significant thing for me -- because we've had a lot of record quarters in a row because we're growing so quickly -- is to see that we're now able to produce cash. We're a heavy cash-producing company. In the past, we haven't produced as much cash and cash flow because we had to reinvest back into the company. But now we're starting to see, even with our growth, we're starting to produce net cash. So it's been pretty exciting for us."
According to Pedersen, ZAGG's website makes up 15% of the company's revenue. "We can ship anywhere in the world for any device," he said. "We have 5,000 different devices that we make products for. We definitely ship a lot of products for Android devices and Android users. It just happened to be that in the past it was the Apple devices -- the iPhone surged, and then the iPad surged on the tablet side (they just overshadowed all of the competition on the tablet side)."
"We have a high attach rate on the tablets with our ZAGGfolio keyboards and case products for the iPad," Pedersen added. "Our new HD film enhances and is conducive to the Retina Display on the iPad.
"So the reality is that what is happening, as Android comes on stronger, it's good news for us because Apple is not slowing down. It's because the market is expanding. We're doing really well with Apple but we're also doing really well with Android."
Pedersen said while most of the Android phones have been sold in Verizon, AT&T, Sprint and T-Mobile stores, ZAGG didn't have a presence in any of those mobile chains until last year. "Our SKU count continues to expand very quickly in these mobile stores," he said. "Even as of right now our InvisibleSHIELD, our keyboard, our cases, we're getting more exposure to Android and we'll be able to attach to that market even more as this year goes on."
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