When Nike (NYSE:NKE) acquired Converse in 2003 for $305 million, it wasn't particularly difficult to make sense of the move.
After all, while Converse's popular products were well within Nike's wheelhouse, they were also disparate enough not to significantly cannibalize Nike's core sales. This, in turn, afforded Nike the ability to grow Converse as a distinct (albeit wholly owned) business -- one which most recently recorded $494 million in quarterly revenue for the athletic apparel behemoth.
By contrast, many Under Armour (NYSE:UAA) investors were left scratching their heads Wednesday, when the up-and-coming performance apparel specialist announced its intention to acquire fitness app maker MapMyFitness for a whopping $150 million.
At first glance, and keeping in mind Nike's Converse deal as a longtime Under Armour shareholder myself, I have to admit I sneered a bit when I read the press release.
Then again, only a few weeks ago, I began an article by writing that "Under Armour wants you to know it's a tech company, too." But at least that was in response to Under Armour writing a comparatively minuscule $25,000 check and awarding a nice contract to the founders of Light Bohrd, whose innovative technology has obvious broader implications for the world of luminescent clothing.
And at just one-eighth of Nike's size, it seems a little silly for Under Armour to be spending this kind of money on a mobile app company -- its first-ever acquisition, mind you -- especially when it should be focused on executing its long-term goal of achieving at least 20% annual top-line growth. To be sure, CEO Kevin Plank stated that while the deal is expected to close by the end of 2013, both Under Armour's previous 2013 guidance and preliminary 2014 outlook remain unchanged.
I suppose shareholders should be thankful MapMyFitness apparently isn't bleeding money. But how, exactly, is it supposed to contribute to Under Armour's long-term success?
Here's why it makes sense
When I dug a little deeper, however, it became apparent why Under Armour would want MapMyFitness on its side.
First, remember that Under Armour already has a few mobile applications available, including the "Armour39" app, which integrates with the company's biometric chest strap of the same name:
Similarly, a quick search of the App Store on my iPhone for MapMyFitness yielded 11 different apps with primarily four- and five-star ratings, all focusing on routines, route planning, goal setting, and even nutrition for running, walking, and cycling. Heck, there's even a four-star app to find the best routes for walking your dog.
What's more, of the 20 million people who've registered accounts at MapMyFitness since its founding in 2006, 9 million use its apps at least once per month and 700,000 check in every single day. For those of you keeping track, that's on par with the 20 million members who've joined the Nike+ social platform since its launch the same year.
That's why, for Under Armour, this just isn't about the money over the short term. Instead, it's about building brand loyalty by interfacing more closely with its target audience. According to Plank, he "wouldn't consider this an app company rather than a community first and foremost."
Perhaps it should come as no surprise, then, knowing Plank himself apparently began using MapMyFitness more than two years ago. And they considered the deal carefully before moving on it, he says, all the while keeping their usual long-term focus in mind.
All things considered, and given Under Armour's track record of continuously overachieving, I'm happy to give its first acquisition the benefit of the doubt.