During Under Armour's (NYSE:UAA) first quarter conference call (as transcribed by Thomson Reuters), CEO Kevin Plank claimed that the company's new health-tracking platform HealthBox was its "second best-selling item on e-commerce" during the quarter after its Curry 2 basketball shoes. The $400 bundle, which started shipping in January, includes an HTC-designed UA Band activity tracker, a UA wireless Scale, and a UA Heart Rate strap -- all of which are tethered to its mobile app. The three devices can also be purchased separately at slightly higher prices.
When UA first unveiled HealthBox at CES earlier this year, Fitbit (NYSE:FIT) stock dipped on concerns regarding competition. Should Plank's recent boast about HealthBox sales worry Fitbit investors?
Is Under Armour a growing threat?
UA has been investing heavily in fitness apps and wearables over the past few years. It bought popular apps like MapMyFitness, MyFitnessPal, and Endomondo, and launched its own app, UA Record. It also launched connected devices like the Armour39, a vitals-tracking chest strap for hardcore athletes, and the Speedform Gemini 2 Record Equipped-connected sneakers.
Last quarter, Plank claimed that UA's digital ecosystem included "over 160 million registered users" with "over 100,000 new users logging on every day and registering." That's much higher than the 29 million registered device users Fitbit reported at the end of 2015, but UA's total includes all the users from its acquired apps. But the introduction of HealthBox and its dedicated app shows that UA is serious about building a unified digital health ecosystem to challenge Fitbit.
However, Fitbit still crushes UA in terms of device sales. Last quarter, Fitbit's revenue rose 92% annually to $712 million. UA's Connected Fitness revenue, which includes all its apps and devices, rose 119% to $19 million last quarter -- less than 2% of its total revenue. Plank believes that figure could hit $200 million by 2018, but that still won't come anywhere close to matching Fitbit's sales.
But UA's marketing muscle could hurt Fitbit
Fitbit is still a much bigger player in wearables, but it needs to beware of UA's marketing muscle. UA recently launched its first HealthBox commercial, narrated by brand ambassador Dwayne "The Rock" Johnson.
UA has been hiring lots of celebrity spokespeople -- including Stephen Curry, Cam Newton, Tom Brady, and Misty Copeland -- to sell its shoes, apparel, and products. If it enlists their help to sell other wearable devices, Fitbit could find it tough to withstand the high-profile marketing blitz, and it already dramatically slashed its guidance for the current quarter due to pricier media promotions.
The market for "sports performance" devices
The wearables market is getting crowded with fitness trackers and smartwatches, but UA and Fitbit are both targeting the niche market of "sports performance" devices.
Last year, Generator Research split the wearables market into three categories -- low-end fitness trackers, mid-range sports performance devices, and high-end smartwatches. It predicted that between 2015 and 2020, annual sales of fitness trackers would fall 77% to $527 million, sales of sports performance devices would grow 32% to $2.9 billion, and sales of smartwatches would soar 795% to $154 billion.
IDC reports that between the fourth quarters of 2014 and 2015, Fitbit's share of the worldwide wearables market fell from 43.8% to 29.5%. Much of that decline can be attributed to the arrival of the Apple Watch, which dominated the smartwatch market, and cheap devices like Xiaomi's Mi Band, which gobbled up the low-end fitness tracker market.
If Generator Research's forecast is accurate, then UA and Fitbit should double down on the sports performance market with apps and devices for hardcore athletes to widen their moats against Apple, Xiaomi, and other rivals. However, there might be enough room for both companies to flourish within the sports performance market without stepping on each other's toes.
Be aware, but don't panic
UA has made a lot of noise in the wearables market, but its actual sales and market share will likely remain much lower than Fitbit's. So instead of worrying about UA, Fitbit investors should track the sports performance wearable market, and see if both companies can thrive within this niche between low-end fitness trackers and full-featured smartwatches.