This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Dr. Dre Is Taking SKUL to School

Stock quotes in this article: SKUL, AAPL, ZAGG

NEW YORK ( TheStreet) -- A herd of investors and analysts seems to have woken up as one to the fact that the consumer headphone market Skullcandy (SKUL) once dominated has become crowded with exciting competition.

I'm a believer in Skullcandy, but the ground has been shifting underneath it for quite some time. Competition is not just more plentiful but fiercer, redefining the headphone market.

As Gregg Greenberg notes in 5 Dumbest Things on Wall Street This Week: March 15, analysts leaped shamelessly to downgrade the stock this week, even as the company was listing all the right measures it was taking to correct its problems. I would add that changes in the sector should have been a red flag, long before now.

Dr. Dre's Beats Electronics entered the market in 2008 -- a full five years after Skullcandy -- but quickly became the dominant player. Its branded products are easily identified from a casual distance and a quick scan of any busy New York City sidewalk reveals a couple of sets of Beats headphones, that modest, identifiable little "b" right at eye level.

Beats are typically higher priced, in the $199-and-above area, compared to Skull's average $99 product. But Beats' compelling higher-end lines have siphoned off some of Skullcandy's lower-end consumer base, putting the prime mover on the defensive.

According to founder and interim CEO Rick Alden, Skullcandy's response was to push the lower end even harder, putting too much emphasis on off-price channels. Further missteps in revamping its packaging added to the problem, Alden said. The bankruptcy of a major retail customer in the UK, HMV, merely brought Skullcandy's precarious position to the forefront.

The company is working to overcome those mistakes, re-making its packaging, pushing into sports branding and global markets and marketing to video gamers, for instance. But those changes come at a price; earnings projections for the first quarter and full year of 2013 have suffered. The outcome from the changes will likely be a better company and a stronger stock, but that doesn't necessarily help traders right now and it likewise leaves questions hanging for investors in the long term.

To make matters worse for Skull, the phenomenal success of Beats has opened the door for others, including former Beats partner Monster and electronics accessories company Zagg (ZAGG). Monster is attempting to outdo Beats, ramping up the style-and-fashion angle with input from Italian pret-a-porter designer Diesel.

Zagg, for its part, specializes in protective covers and cases for electronic devices but is worming its way into audio via the tiny cracks left open by both Beats and Skull. Two new products touted on Zagg's most recent earnings call are great examples of this thinking: a small desktop speaker for music players and decibel-limiting headphones branded for young children. In addition, it offers headphones that directly compete with the main lines offered by Skullcandy and Beats.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,804.71 -238.19 -1.40%
S&P 500 1,946.16 -26.13 -1.32%
NASDAQ 4,422.0850 -71.3050 -1.59%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs