As one side declines, the other rises. Has Aonrun taken over Nike's market?

In 2024, the sports brand giant$Nike(NKE.US)$ is underperforming. Especially after the release of the latest quarterly Earnings Reports, shrinking revenue has led to a crash in stock prices, creating a new four-year low. Since then, Nike's stock price has not been able to recover, falling 25% year-to-date as of the close on September 9. This shows that Nike is facing a series of issues such as intensified competition, shrinking consumers, and strategic decision-making errors.

The Financial Times states that Nike's competitors are no longer traditional players like Adidas, as newer, more agile footwear companies are grabbing market share. The emerging Swiss sports brand On Running $On Holding(ONON.US)$ is one such representative. While Nike continues to decline, On Running's stock price has been on the rise, increasing nearly 65% this year, and its Market Cap has already exceeded one-tenth of Nike's.

Can the ebb and flow between giants and challengers continue, thereby changing the Industry landscape? This week's 【Opportunity Dispatch】 will take a look at this company.

New Rising Star in the Sports Brand

On Running is headquartered in Zurich, Switzerland, founded in 2010 and listed on the NYSE in 2021. The company was co-founded by triathlon world champion and well-known Swiss athlete Bernhard and his two friends, focusing on the development of high-performance sports products, especially in footwear.

In 2019, tennis superstar Roger Federer became the brand ambassador for On Running, while also participating in strategic investments in the company, becoming one of its important shareholders. Federer has also participated in the design and development of the company's products, launching the Roger series of tennis shoes.

Since its establishment, the brand has primarily positioned itself in the mid-to-high-end market, targeting users with higher incomes who pursue product experiences. After the launch of the cushioning technology CloudTec in 2010, the company has continually innovated to enrich its product matrix.

In July of this year, the brand released the Light Spray technology, which allows for automated spraying operations by mechanical arms. This can create precision uppers customized for runners in one step, achieving a seamless, lace-free integrated design.

Source: Company website. This content is for reference only and does not constitute any investment advice.

In terms of channels, traditional brands like Nike rely more on large wholesalers and brand stores, while this brand focuses more on sales through the direct-to-consumer (DTC) model. This aligns with the trend of consumers increasingly shifting online, and the direct model also brings in more profit compared to distribution.

The company also attracts consumers through marketing methods such as hosting running events and providing fitting experiences, and has established the "On Run Club" community to enhance runner loyalty to the brand.

Emerging brands like this one are continuously eating into Nike's market share. Data from YipitData shows that from January to May of this year, Nike's market share in the footwear category declined from 39% to 32%, while traditional brands like Adidas and New Balance also saw varying degrees of decline. Emerging brands have shown impressive performance, with this brand rising from 8% to 12%, and Hoka, founded in 2009 (whose parent company is Deckers, $Deckers Outdoor(DECK.US)$ ) has also seen significant growth.

Data source: Reuters. The case is for illustrative purposes only and does not constitute any investment advice or guarantee.

Analysts at GlobalData indicate that emerging brands continue to attract consumer interest and are taking market share away from Nike. In this regard, Nike remains at a disadvantage and feels somewhat 'boring'.

Performance continues to grow.

On August 13, Angpao released its financial report for the second quarter. Revenue grew by 27.8% to 0.5677 billion Swiss Francs, an increase of 29.4% (at fixed exchange rates), while net profit soared by 834.3% to 30.8 million Swiss Francs. Compared to the same period last year, the gross margin rose from 59.5% to 59.9%, and the net margin increased from 0.7% to 5.4%.

Management maintained the revenue growth expectation of at least 30% for the year, with the annual gross margin expected to reach 60%, and the gross margin for the second half is anticipated to be slightly higher than that of the first half. The company will also advance its warehouse automation project in the United States to expand its distribution capability in North America. Currently, the warehouse space has not yet been optimized, resulting in delivery delays and inventory shortages.

Over the past three years, Angpao's revenue has grown by more than 200%, far exceeding that of its peers.

In Angpao's main business, footwear still dominates, accounting for over 95%. In contrast, Nike's footwear accounts for less than 70%, while apparel and sports equipment make up more than 30%. This also provides space for Angpao to open up a second growth curve in the future, as the company's management stated at the earnings meeting, 'Now people want to use Angpao products from head to toe.'

Despite currently holding a low market share, Angpao's apparel business achieved a high growth of 63% in the second quarter, and the fall/winter season's order volume in the apparel business also saw a doubling increase.

Technical analysis and possible strategy.

The weekly chart shows that Angpao has been in an upward channel since it bottomed out and fluctuated in 2022. The rise at the end of August briefly broke through the upward channel but subsequently adjusted. The weekly Candlestick at the end of August also achieved the highest weekly closing price in history, but there is still a gap to the historical high.

Currently, attention should be paid to whether the upward movement can effectively break through the upward channel. If it continues to retrace, attention can focus on whether the lower edge of the channel can receive strong support.

Data source: Futubull. Data as of September 9, 2024, market close. The case is for illustrative purposes only and does not constitute any investment advice or guarantees.

The Options Volatility Analysis tool shows that as of the market close on September 9, Angpao's implied volatility is at a relatively low state. Especially after the Earnings Reports are released, volatility has significantly decreased.

Implied volatility values, IV rankings, and IV percentiles are theoretical estimates; actual market conditions may not always align with the theoretical information shown. Investors should act cautiously when making investment decisions and use multiple sources of information, as there is no guarantee that using tools or information provided on the Futubull application will lead to investment success or reduce investment risk.

In a risk-neutral situation, low implied volatility indicates relatively low premium, which theoretically benefits the options buyer.

If the company's development is viewed positively, consider buying call options (Long Call). If it's believed that the company may experience a retracement, consider buying Put options (Long Short). For investors holding the underlying stock, if it's believed that the market will remain fluctuating without major rises in the near future, a Covered Call Strategy can be adopted to reduce investment costs.

Of course, the risks associated with options are higher than those of the underlying stocks, and volatility is also greater. Interested investors are advised to learn relevant knowledge systematically before attempting.

Related Risks

High Valuation: Corresponding to the company's high growth is the high valuation given by the market. As of the market close on September 9, ONON's rolling price-to-earnings ratio (PE ttm) is approximately 80 times, while the forward PE is about 40 times. Zacks Investment indicates that the company's trading price is higher than its peers. This year, the company's stock price has seen a significant increase, and the market's optimistic expectations may have already been fully priced in.

Product Positioning: The company's main clientele consists of high-end consumers. With the rapid expansion of the brand, maintaining the high-end positioning and consumer loyalty is an important challenge.

Market Competition: Although traditional brands like Nike are currently experiencing a slowdown in growth, they are recently undergoing adjustments. The scale of these companies is currently much larger than that of Angrun. If traditional brands regain consumer favor, Angrun's momentum may be affected.

Exchange Rate Risk: The company is headquartered in the Swiss Franc and operates in multiple markets globally. The financial statements are denominated in Swiss Franc, and exchange rate fluctuations may impact the company's financial performance.

Risk Disclosure: This content does not constitute a research report, is for reference only, and should not be used as the basis for any investment decision. The information contained herein is not a comprehensive description of the securities, markets, or developments mentioned. Although the sources of information are considered reliable, the accuracy or completeness of the above content is not guaranteed. Furthermore, there is no guarantee regarding the accuracy of any statements, viewpoints, or forecasts provided in this article.

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