The missing $2B Unicorn
Check this out.
There is a company that makes exceptional products. Both hardware and software.
The products are universally used by top athletes across a multitude of sports and are far and away the preferred brand for amateur’s who take their performance seriously.
So it is no surprise that their business is killing it. Here are some of their 2020 metrics.
- $2,445M in revenue1
- 23% revenue increase YoY
- $714M in net income (profitable)
- Overall valuation of $27B2
- 125% increase in value YoY
- $1.5B in Cash
No — This company is not Peloton. It is not Whoop. It’s not Tonal, Tempo, Oura or any other relatively new fitness company that has recently blown up in valuation and is grabbing headlines everywhere.
So who is it…? It is Garmin.
Yes — the company founded in 1989 whose all time high valuation came in 2007 when demand (and promise) for external in-car GPS units spiked.
In October 2007, Garmin was valued at $117 per share.
In October 2008, Garmin was valued at $24 per share.
While the recession played a major role in the initial dip, Garmin’s struggles continued even as markets rebounded.
It would take until November 2020 – just 5 months ago – for the company to reach it’s previous high water mark. While the recession technically lasted 18 months, it took Garmin 156 months to fully recover.
As Garmin would come to learn: Great products don’t necessarily make a great business. GPS units soon became standard in all vehicles and Garmin was boxed out of it’s primary market.
So Garmin repurposed and started focusing on the athlete and the outdoors. Today, the fitness and outdoor market makes up 58% of their revenue. Auto is just 11%.
Their products for runners, cyclists, golfers, hikers, fitness enthusiasts and athletes are top tier. Good-looking sleek hardware combined with technically advanced software. Just as before, Garmin was early to this market and they have benefited tremendously.
Today, Garmin’s valuation is equal to that of Peloton’s ($26B) – the darling of the pandemic fitness boom. The stock price is at $140, a 112% increase from its COVID low.
But the company is at risk at making the same mistake twice. Sitting on their products.
How the company should capitalize on their innovation.
Garmin needs to innovate on it’s business model. It is no longer good enough to just be a retailer. To just sell products at a margin.
Why?
Because this is a single touch point with your customer. Entirely transactional. After the 30 day return policy expires, your company becomes an after thought.
Garmin needs to build a recurring revenue stream.
You know what products have recurring revenue streams? Products that customers use on a daily basis.
Peloton subscribers workout on average 5 days a week. The Whoop community uses their band everyday. Zwift riders participate in virtual rides multiple days a week.
These communities also pepper social media constantly with output of their data, ride or workout. The customers are rabid, excited and loyal. They interact with the brand everyday and share with their community.
You know what other product gets used daily? A Garmin. Yet you hardly ever see someone share output from Garmin connect. There is obviously something missing.
Garmin needs to build a recurring revenue stream and create a community around the product.
But you can’t ask for recurring revenue without giving recurring value. What would a Garmin subscription look like?
Garmin’s core competency is GPS. It is about being outside. Their customers use the wearables and devices primarily for this reason. As a result, most of the customers are running, riding, golfing, hiking, swimming outdoors, etc.
So how do you build a recurring revenue stream off of software when the user is generally not looking at a screen?
One thought is to build an instruction platform.
Create videos in the same vein Peloton does but instead of them being work out based, make them instruction based.
Imagine how cool it would be to integrate a Garmin range finder with a Golf instruction video. Or a swim lesson with heart rate, stroke count, or SWOLF. Or a cycling instruction video with power output. In the near future, the company may even be able to send a drone to follow you while you ride/run.
This would be a good place to start. It would;
- Integrate well with the core hardware
- Appeal to their core user – the dedicated amateur
- Add a subscription component
- Prevent the company from being boxed out from hardware competitors
- Not compete with the workout based companies
Garmin has the resources, the capital, and the distribution to make this a success.
Financially, if the company can build a recurring revenue stream that is 25% of it’s hardware business (like it is at Peloton) this would result in $141M of annual revenue.
Valued at 15X recurring revenue, this could be a $2.1B business for Garmin.
So why not?
Because Garmin makes exceptional products. Both hardware and software.
The products are universally used by top athletes across a multitude of sports and are far and away the preferred brand for amateur’s who take their performance seriously.
Their business is killing it.
When this is the case — when your business is killing it — it is hard to make such a pivot. It is hard to innovate. This is the mistake the company made in 2007.
