GPS device maker, Garmin (GRMN -0.22%) has worked toward diversifying away from reliance on automotive personal navigation devices as that market has declined with GPS now commonly built in, or conveniently available as a phone app.A part of Garmin's strategy has shifted to fitness wearables, and Alphabet's (GOOGL -0.77%) (GOOG -0.75%) announced acquisition of Fitbit (FIT) may be a new threat to Garmin's business. This is one of the big risks of investing in tech stocks: the potential of being disrupted. \
Any impact will depend both on Alphabet's intentions, and the parts of Garmin's business that may overlap.
Image Source: Getty Images.
A look at the business
Garmin has been in business for almost 30 years, and has delivered more than 200 million products. The five reportable business segments offer a diverse mix of GPS-enabled solutions designed for those that embrace the active outdoor lifestyle. In its own words, "In general, Garmin believes that its products are known for their value, high performance, ease of use, innovation, and ergonomics."
Auto, which was once its largest segment, offers personal navigation devices, including GPS navigation, DashCams, and backup cameras. The non-auto segments have grown to become more than 80% of total revenues. The outdoor category includes handheld devices for camping and hiking, adventure watches with multi-sport features, golf devices, and dog tracking and training devices. Fitness focuses on running and multi-sport watches, a cycling product line, and activity tracking devices. Marine includes chartplotters, cartography, fishfinders, and other items for boaters. Aviation provides solutions to aircraft manufacturers and existing owners, as well as government/defense customers.
What's the risk?
Since smartphones with GPS and navigation apps became ubiquitous, Garmin has been highly successful by focusing on growing its non-auto business segments. Below shows the annual growth rates of the segments since 2016.
| Business Segment | Compound Annual Growth Rate |
|---|---|
| Fitness | 10.5% |
| Outdoor | 22.2% |
| Aviation | 16.2% |
| Marine | 15.6% |
| Auto | -16.3% |
Data Source: Garmin financial filings. Calculated 2016 through third quarter 2019.
With this transformation, Garmin has been less and less affected by the shrinking automotive PND market. But with Alphabet taking control of Fitbit's business, let's look at how much at risk Garmin is from what may become new competition. The following shows how Garmin's segment revenues mix has changed since 2016.
| Segment | 2019* | 2018 | 2017 | 2016 |
|---|---|---|---|---|
| Fitness | 25% | 26% | 25% | 27% |
| Aviation | 20% | 18% | 16% | 14% |
| Outdoor | 24% | 24% | 22% | 18% |
| Marine | 15% | 13% | 12% | 11% |
| Auto | 16% | 19% | 25% | 30% |
*Through Sept. 28, 2019. Data Source: Garmin financial filings
The transition from auto has evolved to increase the contributions from the other parts of the business. Fitness has grown to a current level of around 25% of Garmin's business, and with even faster growth rates, the other non-auto segments are also becoming more and more meaningful.
More room to run
While a quarter of the business is significant, the fitness category is much more than activity trackers. Garmin doesn't break out the different devices within each segment. But being the newest of the fitness devices, it's probably safe to say that it's not the majority of that segment.
Alphabet hasn't yet said exactly what it might have up its sleeve for Fitbit, but if it stays true to the core business, it may be looking to pivot from fitness tracking to more comprehensive health tracking and management. Garmin's offerings in fitness and outdoor help support the many activities that have become more and more popular like races, trail running and triathlons. This has not been the focus of Fitbit's products, as it has aimed more squarely on daily activity tracking.
Unless Alphabet is targeting Garmin's overall market specifically, this acquisition will not likely have a major impact on the business. Garmin is much more than just a fitness device company, and the strength of its technology and of those other segments should continue to drive growth, regardless of whether the specific fitness tracking devices now have new competition.
