LONDON, Sept 16 (Reuters Breakingviews) - On (ONON.N) has burst out of the IPO blocks at a blistering pace. Shares of the Roger Federer-backed Swiss sneaker company popped 50% on debut in New York on Wednesday, giving it an $11 billion valuation. With plenty of rivals on its heels and potential political headwinds in China, it may be priced for a sprint, not a marathon.
The tennis maestro bought a stake in the 11-year-old company two years ago. Since then, its track record is stellar, powered mainly by the pandemic boom in running. Sales have grown 60% a year, and the pace may have picked up even more this year - revenue in North America, On’s biggest market, doubled from a year ago in the first six months.
That said, an $11 billion valuation, equivalent to 13 times On’s expected sales of about $800 million this year, looks like an overstretch. Sports behemoth Nike (NKE.N), currently worth $249 billion, trades on a lowly 5 times this year’s sales. Meanwhile $54 billion Lululemon (LULU.O), maker of trendy yoga-pants, is on less than 9 times. Were On to be valued in line with Lululemon’s revenue multiple for next year, it would have to double its top line in the next 12 months, according to Breakingviews calculations.
Its recent performance shows that’s possible. But there’s always the risk of running into trouble. On reckons the tube-like sponges in the soles of its $200 shoes give it an edge. But the high-tech sneaker market is a crowded field. Besides Nike, Asics (7936.T), Adidas (ADSGn.DE) and upstarts like Brooks Running, backed by Warren Buffett’s Berkshire Hathaway (BRKa.N), are investing heavily in their own go-faster models.
A manufacturing base almost exclusively in Vietnam, currently in the throes of a serious Covid-19 wave, is another risk. And there are question marks over its prospects in China, whose 1.3 billion people are increasingly catching the personal fitness bug. Revenue in the People’s Republic was just 5.5 million Swiss francs in 2020 but is likely to treble this year. However, Beijing’s lukewarm attitude to foreign brands, as opposed to local champions like Li Ning (2331.HK), could act as a longer-term brake.
Not that Federer will be too worried. Assuming he held onto his shares, the Swiss has served another ace.
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- Shares of On started trading at $35.40 in New York on Sept. 15, valuing the Switzerland-based sneaker maker at about $11.35 billion. The company on Sept. 14 priced its offering at $24 per share, above its indicated range of $20 to $22.
- The 11-year-old company raised net proceeds of about $746 million from the offering. Existing investors sold shares worth $135 million.
- Tennis legend Roger Federer became an investor and ambassador for On in 2019. Swiss newspaper Handelszeitung said in February the investment was worth some 50 million Swiss francs ($54 million). Five founders of On will hold super-voting shares, which together represent 59.4% of the total voting power.
- Goldman Sachs, JPMorgan and Morgan Stanley acted as lead book-running managers.
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