On Holding AG

title: "Step 01 — Business Model & Overview" ticker: ONON company: On Holding AG source: coverage-next-full step: 01 created: 2026-05-27

Step 01 — Business Model & Overview

On Holding AG (NYSE: ONON)

1. Business Description

On Holding AG is a Swiss premium athletic footwear and apparel company. Founded in 2010 in Zurich by Caspar Coppetti, David Allemann, and Olivier Bernhard (a former professional triathlete), On creates running shoes with its patented CloudTec® cushioning technology — hollow pods that compress on impact and rebound for propulsion, creating a distinctive "zero-gravity" feel [S1]. The company sells directly to consumers via its own e-commerce platform and ~70 branded retail stores, and through ~8,000 wholesale partners globally. Roger Federer joined as a co-entrepreneur and shareholder in 2019 [S1].

On went public on NYSE in September 2021. As of FY2025, the company generates CHF 3.0 billion in annual revenue, employs ~4,000 people, and operates in 60+ countries [S5].

2. Value Chain Layer Map

DESIGN & IP                    MANUFACTURING                  DISTRIBUTION                   END CONSUMER
─────────────                  ─────────────                  ─────────────                  ─────────────
CloudTec® R&D                  Vietnam (90% shoes,            DTC (42% of sales):            Performance runners
(Zurich, Switzerland)          60% apparel)                   - on.com e-commerce             Lifestyle consumers
                               Contract manufacturers         - ~70 own stores                Outdoor/Trail athletes
Helion™ foam                   (Tier 1 partners)              (brand hubs)                   Tennis players
development                                                                                   (Iga Swiatek, B. Shelton)
                               Raw materials:                 Wholesale (58% of sales):
Product design                 China Tier 2 exposure          - ~8,000 premium retail
& innovation                                                  partners globally              
(12–18 month cycles)                                          - Select department stores
                                                              - Specialty running shops
                                                              - No off-price channels

Key: On is a design-led, asset-light company. It outsources all manufacturing to contract manufacturers, retaining design, IP, and brand as core value-creating activities. The company explicitly avoids commodity/mass-market distribution (terminated relationships with off-price retailers like Zalando's off-price channel) [S5].

3. Revenue Model

On generates revenue from four primary drivers:

Channel economics:

• DTC margins significantly higher than wholesale (estimated 20–30 pp gross margin premium on DTC vs. wholesale, consistent with consumer brand industry norms)
• DTC mix growing: 38% in FY2023 → 41% in FY2024 → 42% in FY2025; target ~45–50% over 3–5 years
• Own stores: ~70 as of FY2025 (up from ~50 in FY2024); described as "brand hubs" — high-design, experiential format, not traditional retail

Geographic revenue:

• Americas (primarily US): 57.7% — largest and most mature market
• EMEA: 25.3% — growing steadily
• Asia-Pacific: 17.0% — highest growth (+96% YoY in FY2025); China is primary APAC driver

4. Cost Structure

Cost structure commentary:

• Gross margin of 62.8% is premium-brand caliber — comparable to Lululemon (~57%) and significantly above Nike (~44%) and Adidas (50%). Higher gross margins reflect premium ASP ($180–$250), selective distribution, and growing DTC mix [S2]
• SG&A at 50.3% of revenue reflects heavy marketing investment (Zendaya campaign, athlete partnerships) and store build-out costs; expected to leverage as revenue scales
• R&D of CHF 10.6M (~0.4% of revenue) is extremely low — suggesting CloudTec® innovation is embedded in COGS/design function rather than a separate R&D line
• SBC of CHF 66.6M (2.2% of revenue) is meaningful dilution

5. Key Products

6. Brand & Marketing

Roger Federer: Strategic equity partner (not a paid endorser). Co-designs The Roger line; participates in brand strategy. Stake reportedly ~3% (pre-IPO grant). Unique because Federer is a co-owner with aligned financial incentives [S1].

Zendaya: Named global brand partner (2024). Connects the brand to lifestyle/cultural demographics beyond pure performance running. Major campaign investment.

Iga Swiatek (World #1 tennis) and Ben Shelton: Tennis athlete partnerships reinforcing performance credibility.

"Born in the Alps" brand identity: Swiss precision, clean aesthetic, performance obsession — strong differentiation from US-headquartered Nike/Adidas.

7. Business Model Assessment

Strengths:

1. Premium ASP with demonstrated pricing power — raised prices in 2025 to offset tariffs without demand destruction
2. DTC flywheel: direct consumer relationship generates data + higher margins + brand storytelling control
3. Category expansion (apparel +68%) is early-stage and margin-accretive as it scales
4. APAC underpenetration: brand awareness approaching 30% globally — most premium brands operate at 60–80% in mature markets, suggesting 2–3x awareness growth runway

Risks:

1. Single-brand risk — all revenue from the "On" brand; no sub-brand diversification
2. Manufacturing concentration — Vietnam (~90% shoes); US tariff headwind
3. Founder-transition execution risk — professional CEO/CFO departures replaced by founding entrepreneurs in 2025

8. Source Index

title: "Step 04 — Financial Quality" ticker: ONON company: On Holding AG source: coverage-next-full step: 04 created: 2026-05-27

Step 04 — Financial Quality

On Holding AG (NYSE: ONON)

1. Statement Quality Assessment

On Holding files under IFRS, reports in CHF. As a Foreign Private Issuer, it files 20-F (not 10-K). Financial reporting appears straightforward with no significant restatements identified. Key quality considerations:

Reporting conventions:

• Adj. EBITDA vs. GAAP: Management regularly references Adjusted EBITDA (CHF 567M in FY2025 vs. GAAP operating income CHF 377M), with adjustments primarily for SBC (CHF 66.6M) and depreciation. The gap is meaningful (~50% higher than EBIT) — investors should use Adj. EBITDA for comparability but track SBC as a real economic cost.
• Net income volatility: FY2024 net income (CHF 242.3M) exceeded FY2025 (CHF 203.7M) despite higher revenue and operating income in FY2025. This disconnect reflects lumpy tax items (deferred tax asset recognition in FY2024 and normalization in FY2025). Adjusted EPS (CHF 0.80 diluted) is the better proxy for recurring earnings [S5].
• IFRS 16 lease treatment: CHF 521.5M in lease liabilities (FY2025) must be considered "economic debt" for enterprise value calculations. These are primarily operating store leases as On expands its retail network.

Balance sheet health:

• No financial debt outstanding — clean capital structure
• Cash of CHF 1,020M provides significant cushion and optionality
• Working capital of CHF 570.3M (net working capital per company definition) and CHF 1,237.6M current assets less current liabilities per StockAnalysis [S2]
• Current ratio 2.71x (FY2025) — strong liquidity

2. Statement Adjustments

Adjusted earnings estimate (FY2025):

• Adj. Net Income = Operating Income + Finance Income – Tax = ~CHF 377M + ~CHF 62M (net finance) – normalized tax at ~20% ≈ ~CHF 350M → divided by ~296M shares = Adj. EPS ~CHF 0.81 (matches company disclosure of CHF 0.80–0.81 adj. EPS) [S5]

3. Cash Flow Quality

FCF quality observations:

• FY2024 had unusually high FCF (CHF 450.1M) driven by favorable working capital movements; not the run-rate
• FY2025 FCF declined to CHF 286.6M due to working capital investment for growth (inventory build for APAC expansion) and increased capex (store build-out)
• FCF conversion will normalize as inventory buildup stabilizes; steady-state FCF margin should be 12–15%
• Capex is predominantly growth capex (new stores) — maintenance capex likely CHF 30–40M annually

4. Accruals Quality

Revenue recognition: On follows IFRS 15; revenue recognized at point of sale (DTC) or upon delivery/transfer of title (wholesale). No complex multi-element arrangements or significant deferred revenue identified. Revenue quality: HIGH [S5].

Inventory: CHF 419.8M (FY2025) — reasonable for CHF 3B revenue company. Inventory days ~55–60. No significant inventory write-downs identified in recent filings. The APAC expansion has required incremental inventory build.

Receivables: CHF 305.4M trade receivables — days receivable ~37. Consistent with wholesale/DTC mix. No major bad debt provisions identified.

5. Adversarial Research Sweep

Short Reports

No prominent short reports targeting On Holding AG identified as of research date. ONON has been a long-favored position among growth funds; the stock has not been a prominent short-seller target.

Regulatory Investigations

No SEC investigations, PCAOB issues, or Swiss regulatory actions identified against On Holding AG [Web search 2026-05-27].

Litigation

• No material disclosed litigation in 20-F beyond routine commercial disputes standard for a consumer brand of this size
• Standard IP/trademark protection litigation (protecting CloudTec® patents) — normal for any technology-protected consumer brand

ESG/Labor Concerns

• Manufacturing in Vietnam by contract manufacturers — standard for the footwear industry; On publishes sustainability reports but detailed labor auditing disclosure is limited (consistent with industry norms)
• Cyclon subscription shoe (recyclable) represents proactive sustainability positioning

Accounting Red Flags

• None identified. The gross-margin vs. net-income divergence in FY2024/FY2025 is fully explained by tax timing, not accounting manipulation
• SBC as a % of revenue (2.2%) is elevated but disclosed clearly
• IFRS 16 lease liabilities are standard and fully disclosed

Governance Concerns

• Dual-class share structure: Founders retain 52% voting control with 13.8% economic ownership through Class B shares (10:1 voting). This is a governance risk but is industry-standard for founder-led consumer brands and was disclosed at IPO.
• Founder transition (2025): Professional CEO/CFO replaced by founding co-CEOs. Transition risk is real but founders have deep brand knowledge and are making open-market share purchases (positive signal).

Adversarial sweep verdict: No material red flags in accounting, regulatory, or litigation domains. Primary investor concerns are valuation (premium multiple), execution risk on founder transition, and tariff/FX headwinds — all disclosed and consensus-known risks, not hidden risks.

6. Financial Quality Score

7. Source Index