You probably would never think of Under Armour Inc (NYSE:UA) as a tech company. However, in a few years, you might, which could mean good news for UA stock.
Under Armour is best known as an apparel and footwear company, with more than two-thirds of its revenue coming from the apparel segment. However, CEO Kevin Plank is trying to redefine the company by making a big bet on tech—an approximately $700-million bet to be exact.
Over the past three years, Under Armour bought three fitness-tracking apps—“MapMyFitness,” “Endomondo,” and “MyFitnessPal”—in an effort to get ahead in the connected fitness market. Under Armour also released its own app last year called “Record,” which tracks daily activity, nutrition, and sleep patterns.
By the end of 2015, Under Armour says that “Connected Fitness,” its health and fitness division that includes its suite of fitness apps, had approximately 160 million unique registered users that logged nearly eight billion foods and two billion activities during the year. Its user growth is still exploding. Plank said that the connected community is adding about a million users every eight days. (Source: “Under Armour CEO: We’re Adding 1 Million App Users Every 8 Days,” Investor’s Business Daily, March 14, 2016.)
The platform is open, meaning users can use their Fitbit Inc (NYSE:FIT) device or Apple Inc. (NASDAQ:AAPL) “Apple Watch” with the apps.
Speaking of Fitbit, the company also has a dedicated app with tracking and social features for users of its products. Plus, rival Nike Inc (NYSE:NKE) is also making inroads into the space. However, neither have a digital fitness community as large as Under Armour’s.
So why does this matter?
In the most recent quarter, Connected Fitness revenue hit almost $17.0 million, which only comprises about 1.45% of sales. But growth for the segment is taking off, up about 221% over last year. Under Armour also says that Connected Fitness is giving a boost to the company’s apparel and footwear sales, which saw growth of approximately 22% and 94%, respectively, in the latest quarter.
Under Armour’s head of North America media and advertising for Connected Fitness, Doug Ziewacz, also sees big things for the connected business: “It’s only going to get bigger,” he said. “The next 10 years are going to be really, really exciting.” (Source: “‘It’s only going to get bigger’ – How Under Armour is planning to revolutionize the connected fitness space with the rise of wearables,” TheDrum.com, March 20, 2016.)
The global market for fitness wearable devices has grown to about $4.0 billion and is projected to grow at a compound annual rate of about 30% for the next six years. (Source: “Under Armour raises the bar on digital fitness,” The Baltimore Sun, January 9, 2016; http://www.baltimoresun.com/business/under-armour-blog/bs-bz-under-armour-ibm-watson-20160109-story.html.)
In a previous outlook, Under Armour sees its Connected Fitness segment growing to $200 million in revenue by 2019. That may be a bit conservative now that the company is about to release its first set of wearable devices, including “Under Armour HealthBox,” a suite of products that includes a wristband, heart rate monitor, a Wi-Fi-enabled scale, a smart shoe, and Bluetooth headphones.
Under Armour is going to be receiving even more data from its 160 million users with the addition of its wearable devices to the Connected Fitness segment. For that reason, Under Armour is partnering with International Business Machines Corp. (NYSE:IBM) to decipher all that data.
Under Armour is going to use IBM’s “Watson” artificial intelligence technology to bring virtual coaching to its fitness tracking apps, using the data from its users. The partnership also has the potential to use data to create new fitness products down the line.
For example, the company learned from the MapMyFitness app data that the average user runs 3.1 miles per run, so when it came to making the “Speedform Gemini” running shoe, the company added a specialized foam padding tailored for that kind of run. (Source: “Kevin Plank Is Betting Almost $1 Billion That Under Armour Can Beat Nike,” Inc.com, March 2, 2016; http://www.inc.com/magazine/201602/tom-foster/kevin-plank-under-armour-spending-1-billion-to-beat-nike.html.)
Under Armour is also going to benefit from its Connected Fitness community by creating growth in other areas. For example, the apps could be used to expand international growth. The Endomondo app has about 20 million registered users, with approximately 80% located outside the U.S. This could be an opportunity for Under Armour to introduce its products to new international communities.
Connected Fitness will also be able to grow specific business segments. The company’s “MapMyRun” app has a feature that tracks the amount of miles ran in a particular shoe and alerts the user when it’s time to replace them. It also makes recommendations for new shoes and provides links to purchase them.
The Bottom Line on UA Stock
With its foray into technology, UA stock could surge over the next few years if this venture is successful. Investors may want to take a closer look at UA stock.