Under Armour’s recent Q4 2024 earnings call painted a stark picture: revenue down, leadership in flux, and the North American market in turmoil. CEO Kevin Plank, back at the helm after a four-year hiatus, didn’t mince words. He spoke of a brand at a crossroads, needing to be "reconstituted," and a North American business suffering from “self-inflicted” wounds. The stock buyback program and gross margin improvements offer glimmers of hope, but the overall message is one of retrenchment and rebuilding.

But hidden within the detailed pronouncements about SKU reductions and wholesale relationships, there’s a curious detail that seems to have slipped past analysts: the lingering presence of MyFitnessPal. While the app itself was sold in 2020, its ghost continues to haunt Under Armour’s financial statements – and perhaps its strategic thinking.

The Q3 2024 transcript reveals a $50 million benefit from the "final earnout" related to the MyFitnessPal sale. This unexpected windfall boosted Under Armour's earnings per share, masking what would have otherwise been a miss. It also raises the question: why is Under Armour still receiving payments for an app it sold over three years ago?

The answer lies in the structure of the MyFitnessPal sale. When Under Armour offloaded the app to Francisco Partners, it likely included an earnout clause. This means that a portion of the final sale price was contingent upon MyFitnessPal achieving certain financial or operational targets. The $50 million benefit suggests that MyFitnessPal has exceeded expectations under its new ownership, triggering this final payout.

This detail reveals a deeper truth about Under Armour: its struggles extend beyond product and marketing. The company has a history of making big bets on technology and connected fitness, only to see those bets fizzle. The $475 million acquisition of MyFitnessPal in 2015, alongside the $710 million purchase of Endomondo, was supposed to create a powerful digital ecosystem around the Under Armour brand. But integrating these apps proved challenging, and user growth stagnated. By 2020, Under Armour had recognized its misstep, opting to focus on its core apparel and footwear businesses.

The irony is that MyFitnessPal, once a burden, is now delivering unexpected profits. It’s a reminder that Under Armour had, at one point, tapped into a significant consumer need. It also suggests a potential strategic blind spot. While Plank rightly focuses on reinvigorating the core product lines, he should also be asking why Under Armour failed to capitalize on the digital fitness trend.

Could this failure be attributed to poor execution, or does it signal a fundamental mismatch between Under Armour’s brand identity and the connected fitness space? Plank’s focus on “underdog grit” resonates with athletes, but does it translate to the broader audience seeking health and wellness solutions?

The MyFitnessPal earnout should serve as a wake-up call. Under Armour needs to learn from its past, both its mistakes and its successes. While refocusing on its core is crucial, the company shouldn’t shy away from exploring new avenues for growth – particularly in the digital realm.

Hypotheses and Numbers:

The MyFitnessPal earnout was likely tied to user growth and/or revenue targets. Francisco Partners, a private equity firm, would have sought to optimize the app's performance to maximize its return on investment. The earnout structure suggests that Francisco Partners believed MyFitnessPal had significant untapped potential. This contrasts with Under Armour’s decision to divest, indicating a potential difference in strategic vision. Under Armour’s current share repurchase program ($500 million) is roughly equivalent to the combined acquisition price of MyFitnessPal and Endomondo ($1.185 billion) in 2015. This highlights the significant resources invested in the failed digital strategy. The gross margin improvements projected for fiscal 2025 (75-100 basis points) are modest compared to the expansion achieved in the early 2010s (over 300 basis points). This suggests that Under Armour faces significant challenges in restoring its pricing power and brand premium.

Revenue Trends: A Tale of Two Regions

Under Armour's strategic reset involves a significant revenue contraction in North America, while international markets are expected to remain relatively stable. This chart visualizes the projected revenue trends for fiscal year 2025.

Under Armour’s future hinges on its ability to address these questions. Plank's return brings a renewed sense of purpose, but the company must avoid repeating the missteps that led to its current predicament. The ghost of MyFitnessPal may be a painful reminder, but it also offers a valuable lesson: innovation, no matter how promising, must be carefully executed and aligned with the brand's core identity.

"Fun Fact: Under Armour's iconic "I WILL" slogan, introduced in 2000, wasn't just a marketing tagline; it was a reflection of Kevin Plank's own relentless drive and the brand's commitment to empowering athletes. This simple yet powerful message helped solidify Under Armour's place in the hearts and minds of athletes worldwide."