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ZAGG Inc. Needs Another Apple

By Rick Munarriz – Feb 24, 2014 at 7:00PM

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ZAGG Incorporated has plenty to prove heading into tomorrow's quarterly report.

It's been a long way down for ZAGG (ZAGG).

The company behind the invisibleSHIELD of protective-screen covers for smartphone and tablet displays has seen its stock shed nearly half its value over the past year. The stock has plunged 74% since peaking three summers ago.

ZAGG's adhesive screen cover helped ward off scratches that can happen from drops or keys sharing the same pocket as a device. But selling protective films, Bluetooth keyboard covers, and other consumer electronics accessories just hasn't been very lucrative for ZAGG. It naturally wasn't always that way. ZAGG came into its own shortly after Apple (AAPL 0.47%) introduced the iPhone in 2007, but business really picked up three years later with the iPad and its larger screen to protect. 

This should be a great time for ZAGG. Today's Mobile World Congress in Spain is seeing handset makers introduce new devices in various form factors. Apple itself is widely reported to be increasing the display of its iPhone. These used to be positives for ZAGG since it meant folks had to buy screen protectors with new size configurations. It just hasn't panned out that way. 

ZAGG has gone on to sell more than 65 million invisibleSHIELD films, but stronger screens, cheaper knockoffs, and Apple itself improving its in-house accessories have crushed ZAGG. We'll get a clearer snapshot on how ZAGG is going tomorrow when it reports quarterly results. 

It won't be pretty. Sales growth turned into sales declines starting in the first quarter of last year, and ZAGG stunned investors yet again in November by offering up guidance that implies a roughly 30% slide in sales for the holiday quarter. 

Tablet and smartphone sales continue to grow at healthy rates. Unfortunately, it's no longer the same captive market where ZAGG can sell its wares briskly at decent markups. ZAGG keeps introducing new products, but investors are going to stay away until all of these introductions result in overall sales and earnings growth.

Apple can help, of course. The arrivals of the iPhone, iPod touch, and iPad helped fuel an outlet for ZAGG to put out innovative accessories before Apple could dream them up on its own. Apple has promised that it will introduce products in new categories this year, and that could be the ticket to finally shake ZAGG from its slump. But until that happens, tomorrow is likely to treat investors to an uninspiring report and hazy outlook into 2014.

Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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