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Investors are waiting to see how Under Armour's massive investment in digital is going to pay off. This partnership could provide additional revenue, but the importance of digital is bigger than that.
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Image source: Under Armour / Mindbody.
Under Armour (UA +0.01%)(NYSE: UA-C) has spent over $700 million in the past few years to acquire various fitness apps on the premise that digital would be an important avenue of future growth for the company, and that the high cost of this investment would pay off in the long run. The company has shown various ways recently that its digital properties could bear fruit, the newest of which is a partnership with Mindbody (MB +0.00%) that allows users to book group fitness classes directly through Under Armour's MyFitnessPal app.
Image source: Under Armour / Mindbody.
Mindbody, a company that provides cloud-based software for the fitness industry, offers a service that allows consumers to book a spot in group fitness classes at over 55,000 gyms in 130 countries. Mindbody CEO Rick Stollmeyer said in an interview that the platform works by providing smaller gyms and fitness studios with customers in their area that are looking for drop-in classes. According to Stollmeyer, about half of available group fitness class spots go unused. Having a third party generate demand for those classes is great for the providers, and as a result, Mindbody gets to take a small cut of each booking.
The partnership between Under Armour and Mindbody puts that service in the MyFitnessPal app, allowing users to find, book, and pay for classes directly in the app. As of now, the feature is only being integrated into the MyFitnessPal app, one of multiple UA-owned apps, and only for users in the United States. However, it's likely that this service could expand further in the future.
In the most recent quarter, Under Armour's Connected Fitness segment (the segment that includes digital operations) grew sales 73% year over year but still made up up only 2% of the company's total revenue. While Under Armour was unable to give any financial specifics of this partnership with Mindbody, such as if and how much of a cut of bookings they might keep, it's easy to see how this could potentially be a new revenue generating operation going forward. Mindbody itself made more than $33 million in revenue in its most recent quarter, so clearly this is a sizable market.
However, the importance of Under Armour's digital platform growth is not just in direct revenue generation. Under Armour has more than 180 million users across its suite of apps and the continued growth each quarter is impressive. When asked why this new partnership with Mindbody matters, Under Armour Chief Digital Officer Mike Lee said that it's important that Under Armour can play a role in helping its consumers to increase their activity and overall health.
Aside from the potential for direct sales from services like this one, Under Armour has been adamant about how its investment in digital could help to expand sales across all of its other segments. This focus on using digital to drive apparel revenues is evident in the summer launch of UA Shop, a mobile shopping app that pulls an individual's data from the other Under Armour apps to provide specific sales recommendations and offers. Even though Connected Fitness still accounts for just a fraction of total sales, this digital strategy looks like an important part of Under Armour's long-term success -- and this partnership with Mindbody is just one more reason to believe that strategy is continuing to progress.
