On the heels of a strong close to 2014 and annual sales and profits growth of 32% and 28% respectively, Under Armour hosted a meeting with the investment community, addressing its recent acquisitions that, when combined, create the world’s largest digital health and fitness community. Aptly named Connected Fitness, CEO Kevin Plank, along with the leaders of the newly assembled Under Armour digital team and CFO Brad Dickerson, spoke to rationale, strategy, and opportunities.
In true entrepreneurial fashion, Plank started Under Armour as a football player who couldn’t understand why there wasn’t a T-shirt on the market that was light and wicked sweat, which would improve his (and athletes generally) performance. The rest, as they say, is history. The guiding principle from his inspiration 19 years ago, to the more than $3 billion in annual sales just reported, is the goal to make the athlete perform better. This remains the goal with the MapMyFitness acquisition (in 2013), Endomondo (acquired January 2015), and the MyFitnessPal purchase (closing in the current quarter). In the digital world, Under Armour now has more than 120 million unique registered users in its online community.
What Facebook is to Social and LinkedIn is to Business, Under Armour Will Be to Health & Fitness
With its core customers (and most consumer goods companies for that matter) spending more and more time across different screens, platforms, networks and content providers, the Under Armour challenge is how to be relevant and keep them engaged. Plank and his executive team were genius to leave the IT development to the engineers and focus on Under Armour’s real competency: connecting with athletes, and making them better. Just as genius is MapMyFitness’ agnostic, open source platform. There isn’t a device on the planet that doesn’t work with the MapMyFitness platform; android or iOS, Jawbone, Fitbit or Garmin, or whatever the next latest and greatest wearable will be. They all work! As Plank said, “We don’t have competitors in this world. We have partners.” Wow, this is a smart way to win!
Digital Will Increasingly Play a Bigger Role in Athletic Performance
For Under Armour and its digital team, the charge has been to create the most seamless way for athletes to connect with the Under Armour brand through 400 different devices that work with MapMyFitness, Under Armour Record, MyFitnessPal and Endomondo. The value for Under Armour is the ability to build a loyal community and immerse itself deeper into the athlete’s life. Connected Fitness enhances Under Armour’s competency to build strong relationships, and ultimately to sell more shirts and shoes. This is a real lifestyle brand.
Health, Fitness & Digital
Under Armour just launched Record to track workouts, activities, even sleep time, and de-duplicate the data that is collected by multiple devices. The next step after data collection is predictive analytics — really upping Under Armour’s ability to make athletes better. Today’s digital technology and IoT allow for an average runner to get the same level of analysis than only an elite athletic would get 15 years ago. And it’s for free, instead of several hundreds of thousands of dollars. Now you can have a coach in your pocket, and it’s only a matter of time before the technology moves from the wearable or smartphone to the apparel you’re wearing (Under Armour, of course).
The Social Dimension
Mette Lykke, the co-founder of Endomondo, sees wearables technology being embedded in apparel within a few years. But what’s important is the social element; what makes the platform sticky and motivates members of the communities to use the tech. According to Robin Thurston, founder of MapMyFitness, the power of social is measured in micro challenges. The company has created a way for customers to compete with up to 20 people, all at the same time. This tracking system creates a supportive social dialogue, like, “I know you can do it!” and “Hey, I beat you today!” According to Thurston, these micro challenges really drive people to increase their number of workouts. And if Under Armour’s Connected Fitness can get people to work out one more day a week, it will have a massive impact on the business.
Digital Is Not a Sixth Growth Driver: It Supports the Other Five Drivers
As exciting as all this technology is, I was more enthused to hear Plank and Anderson dismiss “monetizing” the opportunities, which they likened to capturing near term profits at the expense of long term value. This is their year of onboarding, investing and strategizing; 2016 should see some benefit that drives right back to the core— data and connected communities making athletes better. Under Armour put a $4 billion revenue goal for 2016, and Connected Fitness has a central role. While Connected Fitness provides opportunities in advertising, subscriptions and licensing, the key takeaway is these acquisitions position Under Armour to better execute along its five growth engines: men’s apparel, women’s apparel, footwear, international and direct to consumer. Under Armour’s investment stance has always been long term as it approaches new opportunities — footwear, women’s, international, and now social communities. It has been one of the reasons I’ve been an ardent supporter of the team and UA shares, despite lofty valuations (selling at 67 times the consensus 2015 EPS estimate; 3.3X its peer group and 2X Lululemon shares, based on February 17 closing prices).
This newly assembled Connected Fitness platform positions Under Armour at the heart of their customer base in the athlete’s life and is likely to bear fruit for many years, across many regions. The incremental changes that connectivity and big data potentially have on one’s activity and health are monumental. We are just at the beginning of very interesting times ahead!