On Holding AG (NYSE:ONON) is expanding beyond its traditional running and tennis categories as it seeks to become a global sportswear brand. The company’s strategic partnership with football star Kylian Mbappé represents an important growth step into a highly lucrative market.
The strategic partnership could significantly increase the brand’s exposure among football fans worldwide while opening a new growth category beyond the traditional strength in running and its more recent expansion into tennis.
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On Holding is expected to launch its first football boots and apparel next year, giving the partnership the potential to become a new revenue driver rather than simply an endorsement arrangement.
Mbappé’s involvement in testing and co-developing products could also strengthen the credibility of On Holding’s football offering, providing a level of product validation that a conventional advertising campaign may not deliver.
If On Holding’s football products gain traction with consumers and professional players, the partnership could help the company establish an entirely new product franchise and broaden its long-term revenue opportunities.
However, Jefferies remains wary of the partnership translating into meaningful sales acceleration. The firm raised concerns about the deal’s growth potential on September 18, arguing that signing Mbappé as a brand ambassador could have limited financial impact.
Jefferies subsequently reiterated its Underperform rating on On Holding and maintained a $20 price target. The stance reflects concerns about the company’s relatively limited addressable market and slowing growth momentum, particularly in the Americas.
Intensifying Competition in Football
On Holding AG’s entry into football also puts it up against some of the world’s largest sportswear brands. The big brands have already established extensive relationships with football clubs, national teams, and high-profile players, giving them established distribution networks and significant brand recognition in the category.
This stiff competition creates a substantial challenge as the company seeks to build a presence in football footwear and apparel. The company may need to spend more to attract consumers to its brand and address slower growth in its key U.S. market. Americas sales growth on a constant-currency basis slowed to 13% in the second quarter, down from 17.1% in the first quarter.
Hedge Fund Positioning
Institutional positioning toward On Holding AG improved modestly in the second quarter. According to the Insider Monkey database, the number of hedge funds holding the stock increased to 54 from 52 in the first quarter.
Some large investors also increased their exposure. BAMCO raised its stake by 75% to approximately $599.65 million, while Lone Pine Capital initiated a position worth about $470.38 million.
At the same time, short interest increased. The number of ON Holding shares sold short rose from 19.82 million as of July 31 to 22.95 million as of August 31, representing short interest of approximately 6.87% of shares outstanding.
The Investment Case
On Holding AG has achieved a significant milestone in the bid to broaden its brand and try to cure slowing growth in one of its key markets. While the Mbappe endorsement is likely to enhance visibility, the company still needs to prove that the strategic partnership can result in incremental revenue and sustained market-share gains.
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