The Evolution Of The GPS Giant

Key Takeaways

• Garmin has consistently turned a profit in recent quarters, but its earnings are trending downward.
• Garmin stock soared in the first year and a half of the pandemic but has since lost more than half its value.
• CEO Clifton A. Pemble sold 9,550 shares of Garmin stock in September.

Garmin is one of the pioneers of GPS tracking devices, and the company launched one of the first consumer GPS units. That unit and its business in marine and aviation navigation propelled the company to enormous success in the decades that followed.

While GPS is still a critical technology, the company has had to evolve to stay relevant. Insofar, it has transformed itself into a fitness company, offering a variety of wearables, fitness trackers, and other sporting equipment (not a total departure given their nautical roots).

That positioning also helped the company reach explosive levels of growth during the COVID-19 pandemic. As a result, its stock price skyrocketed.

But as people return to work, it would seem that fewer of us are buying smartwatches and fitness trackers. So the question now is how Garmin will evolve, yet again, as we enter a new phase.

The Evolution of Garmin

Garmin was founded in 1989 by Gary Burrell and Min H. Kao. The name Garmin is an amalgamation of the co-founders’ names (“Gar” and “Min”). In its early years, Garmin’s business model was focused on its goal to “popularize GPS and change the world.”

Initially, it did this by combining cockpit navigation devices into an all-in-one design, which was very popular. One example of this was the GPS 95, launched in 1993. It was the first GPS unit for aviation, according to Garmin.

Later, the firm would expand its product line, integrating GPS units into various devices. These include cell phones, portable GPS units, marine units, and wearables. In addition, it recently added the Garmin Index BPM to its product line for blood pressure monitoring.

By 2005, Garmin’s revenue had already topped $1 billion, it reported earnings of $1.03 billion for the fiscal year. However, it increased its revenue by 73% to $1.77 billion in 2006. It was now working in many segments, including auto, outdoor/fitness, and marine/aviation.

Garmin’s earnings have only continued to increase. Its revenue was nearly $5 billion in 2021, and its trailing 12-month revenue exceeded $5 billion for the first time in Q1 2022.

Earnings

Garmin announced its second-quarter earnings on July 27, 2022. Its revenue for the quarter was $1.24 billion. That is 6% lower than the prior year’s quarter, but the report notes that the previous year benefited from pandemic-driven sales.

Its operating income was $293 million, 21% lower than the previous year. Its net income was $257.87 million, an 18.65% drop. Despite this, Garmin posted an operating margin of 23.6% for the quarter. Its EPS was $1.33, which was 18.9% lower than Q2 2021.

In the report, Garmin CEO Cliff Pemble said, “Revenue declined during the second quarter driven primarily by underperformance in our fitness segment.” In addition, Pemble noted that the company has challenges ahead, including a strengthening of the U.S. dollar coupled with high inflation and rising interest rates.

The report also noted that Garmin launched two new products: the Forerunner 955 Solar and the Edge 1040 Solar. These devices are the company’s first fitness devices with integrated solar charging.

What’s next for Garmin?

Like many businesses, Garmin is at something of a crossroads. Its new positioning as a seller of fitness trackers and smartwatches has been a double-edged sword. While its sales snowballed for about 18 months of the pandemic, those temporary gains have mostly melted.

This has led to some lukewarm sentiment around Garmin stock. Even though its share price is less than half of what it was in the fall of 2021, some analysts recommend holding the stock, while some lean slightly toward a buy recommendation.

Some feel that double-digit gains are possible. And Garmin stock is currently priced lower than it was even before the pandemic, so a bounce-back seems plausible. But again, the sentiment is generally lukewarm.

Against the backdrop of declining sales, the CEO said in the last quarterly report, “While we must adjust expectations, we believe that our lineup of innovative products and strategy of diversification will allow us to remain strong in an evolving economic environment.” However, only time will tell just how true that is.

Bottom Line

Garmin began as a GPS company, installing its navigation devices in cars and boats. Then, it expanded its product line, installing its GPS devices in phones, portable units, and wearable tech. Its foray into wearables made it a fitness company, which boosted the stock price.

Those trends have waned; today, Garmin stock is selling lower. The company is still profitable, but it is uncertain how the company will position itself in a post-pandemic world. Garmin CEO Cliff Pemble is confident the company can press on. Garmin stockholders will have to hope Pemble is right.

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