How Under Armour Is Becoming a Tech Company

Don't value Under Armour as an apparel company alone.

Seth McNew
Bradley Seth McNew
Jun 7, 2015 at 3:35PM
Consumer Goods

Under Armour (NYSE:UAA) has grown its market share by leaps and bounds in recent years to become the second-largest athletic apparel seller in the U.S. as of 2014, behind only Nike.

Even more exciting is the company's continued evolution. With recent smartphone app purchases and upgrades, a push into smart apparel, and now a new digital headquarters in Austin, Texas, Under Armour is quickly becoming a technology company.

Why Under Armour spent $710 million for apps
Under Armour has made 2015 the year of connected fitness apps and devices. In Q1, the company purchased two fitness-tracking apps, MyFitnessPal and Endomondo. The company's MapMyFitness, bought in 2013, also was upgraded this year with a new premium service for serious fitness tracking. In total, Under Armour spent $710 million on these apps. The company also released its own fitness app, called Record, in January. 

Under Armour's new fitness tracking app Record. Image: Under Armour, Apple App Store.

Under Armour already boasts more than 130 million users of its apps network, and one in five people in the U.S. have downloaded an Under Armour-owned app.

While the apps seem to be Under Armour's biggest focus, the company has also teamed up with HTC to make a hardware fitness tracking device to support its new software services. (The apps also work with most other popular trackers, including those made by Fitbit and Jawbone.) The Grip fitness tracker is expected to be available for purchase this year for about $199.

What "connected apparel" could be
Under Armour was already on the edge of technologically superior athletic apparel when it started making compression shirts with fabric that didn't absorb perspiration and become heavy like cotton. Since those humble beginnings, Under Armour's idea for smart apparel has expanded to clothing that includes electronic functions and data gathering.

"If we believe that our future is going to be defined by these hard pieces of glass or plastic that sit in our back pockets, you're crazy. It is going to convert into apparel," says Under Armour CEO Kevin Plank. 

Plank has estimated that 50 billion retail items will have a connected chip within five years. His vision is for Under Armour to be on the forefront of the apparel side of that trend with connected apparel that can read your biometrics.

According to Plank, our body is our most important asset and we should be tracking key data about it. Not only could connected apparel and digital fitness tools have benefits for athletes and Under Armour, Plank believes they could be the start to a new vision for health care. This is only the start of what connected apparel could do for athletes and others, with broader applications for this technology still to be discovered.

The new connected fitness HQ and the future of Under Armour
The company's push into the digital space means vastly expanding its engineering and e-commerce teams and giving them space to grow the company further. In its latest push to show how important technology is to its business, Under Armour recently opened its connected digital fitness headquarters in Austin.

According to Under Armour Chief Digital Officer Robin Thurston:

In the last six months we more than doubled the size of our connected fitness team. Our brand's trajectory in the digital space is unprecedented, and we're building the most equipped and talented team to deliver products that will change lives everywhere through health and fitness technology. The talent we have secured and on-boarded is monumental, and our connected fitness team is poised to advance the entire landscape of the technology industry.

Is Under Armour too expensive?
As an athletic apparel company, Under Armour looks overpriced. At 87 times trailing earnings, it's far pricier than rival Nike (29 times trailing earnings) and the rest of the industry (21 times).

However, if you look at Under Armour as an up-and-coming technology company -- the first to use athletics and health data in this fashion, with further innovation ahead -- then its valuation becomes much easier to swallow. For long-term investors, it will be interesting to watch how Under Armour continues to transform into a tech company in the years ahead.