In a report published Monday, Morgan Stanley analyst Jay Sole commented that Under Armour Inc's UA "connected fitness" strategy could become worth billions of dollars under the right circumstances.
Shares are Equal-weight rated with a $68 price target.
Sole noted that Under Armour is attempting to create a "fitness network" that would be similar to Facebook Inc's social network or LinkedIn Corp's business network. The company's portfolio of fitness apps help consumers track their health while developing an online community that will generate additional athletic apparel and footwear sales while generated brand loyalty.
"Under Armour is content for now to let its apps remain marketing vehicles," Sole wrote. "However, we see monetization possibilities beyond apparel and footwear. We believe fitness and sports industry professionals, health care providers, food companies, and grocers could all be interested in tapping the data generated by the network – if Under Armour can achieve a critical mass of users."
Sole argued that if the company becomes successful in monetizing its network beyond apparel and footwear, it can unlock $5 billion to $10 billion in value creation and generate $500 million to $1 billion in potential sales.
Under a "bull case" scenario, Under Armour will see EBIT margin expansion towards 15 percent and shares could trade as high as $121. However, the analyst cautioned that the company's main challenge ahead is to "meld" its three internet apps into one big, sustainable network – an ongoing initiative that remains in its early stages.
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