Under Armour is setting up the world's biggest online fitness tracking community by combining its operations in this field with two big connected fitness platforms acquired in the last few weeks, Copenhagen-based Endomondo and San Francisco-based MyFitnessPal. It has paid $85 million for Endomondo, an open international fitness tracking and social fitness network with about 20 million members, mostly in Europe. It has agreed to pay $475 million for MyFitnessPal, most of whose 80 million members are based in the U.S.
The two platforms will come together under the umbrella of the Under Armour Record app, which was announced at the Consumer Electronics Show in Las Vegas earlier this year, forming an extended international community of 120 million unique users. Out of them, 85 million are under the age of 40. Interestingly, 72 million are women, compared with 65 million women on Nike's digital platform, and 53 million reside outside the U.S.
UA will be able to connect with all of them to collect data on their workouts and other activities, calories burnt, and their sleep and nutrition patterns. Through the UA Record dashboard, they will get advice on how to manage their health and fitness activities. They will also get recommendations on UA apparel or footwear that will suit their needs, replacing their workout gear and eventually placing their orders directly online. UA noted that 300,000 runners have purchased shoes through MapMyFitness.
This sort of digital relationship with consumers is regarded by UA as a new and effective form of direct advertising that will help build brand loyalty and justify the huge investments made by the company. Besides the $560 million spent on the acquisition of Endomondo and MyFitnessPal, it plans to invest $7 million for their integration and an additional $15 million to optimize the whole system. It will have a total of about 1,400 engineers on its payroll, headed up by the managers of MyFitnessPal for the U.S. and of Endmondo for the rest of the world.
Minimal revenues will be directly generated by the integrated fitness platform - in the order of $25-30 million per year through subscriptions and advertising. In effect, UA is paying $5.60 per registered user and $18.67 per dollar of revenues, but it is expecting a return on the investment in future years through the expansion of its digital community and incremental sales of its own products. Together, UA's pre-existing and new digital communities got 4.2 million new members during the month of January, while capturing 100 million workouts.
After entering the fitness tracking and wearable technologies space with the Armour39 measuring device in February 2011, the company pursued its digital development program in December 2013 with the acquisition of MapMy Fitness, a company based in Austin, Texas, which placed it in contact with 20 million registered users. They have since grown to 31 million, and in the process, the company has been able to gain useful insights into the value of the big data generated through this sort of platform.
UA's management admits that its whole Connected Fitness program will contribute to depress the company's operating margin in the short term, down to 10.6 percent this year from a relatively flat ratio of 11.4 to 11.5 percent in the past three years. Two other negative factors will be the strong development of its footwear business and its international operations, where margins are lower than in the core apparel business. UA's operating margin on apparel has already risen from 11.5 percent in 2012 to 12.2 percent in 2014 and is expected to grow to 12.6 percent in 2015. The overall Ebit margin will remain low in 2016, but the management is confident that it will return to its targeted 23 percent compound average growth rate by 2017. Revenues should continue to grow at a double-digit rate.
