What: Shares of mobile device accessory manufacturer Zagg (NASDAQ:ZAGG) slumped on Wednesday following the company's fourth-quarter earnings report. Zagg missed analyst estimates for both revenue and earnings, reporting a steep drop in revenue, and its guidance for 2016, which included the effect of the company's merger with Mophie, failed to give investors confidence. At 11:20 a.m. ET, the stock was down about 13.5%.
So what: Zagg reported quarterly revenue of $78.6 million, down 23.2% year over year and about $4 million shy of the average analyst estimate. Zagg pointed to strong sales of screen protection products, even without a new iPhone form factor, but demand for tablet keyboards was weak. IDC reported that global tablet sales slumped 13.7% year over year during the fourth quarter.
Zagg reported earnings of $0.18 per share, down from $0.43 per share during the prior-year period, and $0.06 lower than analysts were expecting. Gross margin slumped 2 percentage points to 37% and operating expenses rose despite the steep drop in revenue, leading to the dramatic decline in profits.
Along with the earnings report, Zagg announced that it had completed its merger with fellow accessory maker Mophie. In 2016, Zagg expects total revenue in a range of $460 million to $500 million, reflecting 10 months of Mophie contribution. This range represents growth of between 4% and 13% compared to 2015. Gross margin is expected in the low- to mid-30s, dragged down by Mophie's lower profitability.
Now what: With both revenue and profits slumping during the fourth quarter, it doesn't take a detective to determine why shares of Zagg sold off on Wednesday. The company is facing the continued decline of the tablet market and the slowdown of the smartphone market, which IDC expects to grow in the single digits during 2016.
Despite the weak results, Zagg CEO Randy Hales is optimistic about the merger with Mophie. "We are very excited to announce the closing of our strategic merger with Mophie, the market leader in battery cases and external power for mobile devices. The acquisition further positions ZAGG as a leading accessories innovation company with a more diverse product offering and broader distribution footprint that can be leveraged to increase enterprise value for ZAGG stockholders."
Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. 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.