Why Should Under Armour Give Up On Its Connected Fitness Division

Since earlier this decade, Under Armour ( UA ) has found itself at the forefront of trying to infuse technology with its sports apparel. The company clearly understood its importance and has always been somewhat of a pioneer when it comes to connected fitness technology. However, over the past few quarters, things at its Connected Fitness segment have slowed down significantly. This begs the question: Is it time for the company to move on?

Under Armour's first Connected Fitness acquisition was in 2013 when it purchased MapMyFitness at a price of $150 million. Soon after, Under Armour concluded an additional $560 million deal with MyFitnessPal and Endomondo. However, the company didn't lay the groundwork for its Connected Fitness business until 2015, when it created a digital fitness community across its four mobile platforms: UA Record, MapMyFitness, Endomondo, and MyFitnessPal.

At the same time, the company released its first connected fitness portfolio at the Consumer Electronics Show in Las Vegas. Under Armour's CEO Kevin Plank introduced the UA HealthBox, which included a Bluetooth-enabled scale, a heart rate monitor, and a band for the wrist that tracks steps, distance, resting heart rate, and sleep. Following its release, the UA HealthBox secured its place as the second fastest selling product in the company's portfolio after the company's Curry 2 in Q1 2016.

However, earlier in the year, Under Armour announced that it would be discontinuing the UA HealthBox, which until recently was being set up to compete with the likes of Fitbit in the wearables market, on broken sales and heavy losses. The devices are expected to be pulled from the market at the end of this year, while the company completely phases out its support for the wearables in 2018. This, in our opinion, marks the beginning of the end for the company's Connected Fitness segment.

UA's Connected Fitness business generated less than 2% of the total revenues during the first nine months of 2017. While the company continued to record heavy increases in users across its platform, the segment consistently recorded losses over the period. This was primarily because the company's digital ecosystem was heavily fragmented. Many of the users only tried out the free versions of the apps instead of the paid ones with premium features. Further, combining this business with a growing inventory of hardware products like HealthBox have helped create a very undesirable position for the company, at a time when even market leaders like Fitbit are struggling to make ends meet.

Therefore, it only makes sense that the company gives up on its dream of becoming a connected health and fitness company. It would make a lot more sense for the company to shut down its Connected Fitness business and invest that money in stronger R&D or marketing efforts to counter a resurgent Nike and Adidas. Nike rightly exited the fitness tracker business over three years ago, and by the looks of it, Under Armour should follow suit before it's too late.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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