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 12 — Catalysts (Bull/Bear)" ticker: ONON company: On Holding AG source: coverage-next-full step: 12 created: 2026-05-27

Step 12 — Catalysts (Bull/Bear)

On Holding AG (NYSE: ONON)

1. Key Findings

Net assessment: BULLISH with defined bear cases. The bull/bear debate on ONON is well-defined: bulls see a rare combination of a premium brand at an early global stage + expanding margins + APAC optionality at a de-rated multiple (~22x EV/EBITDA vs. 40-50x a year ago). Bears see tariff headwinds, founder transition risk, and a still-elevated valuation for a company whose path to 20%+ EBITDA margin requires sustained execution over 3-5 years. The base case is bullish — the company's Q1 2026 gross margin of 64.2% exceeded consensus and demonstrated tariff offsets are working.

Note: Earnings call transcripts were not loaded (coverage-next-full path). Bull/bear debate is inferred from filings, press releases, consensus notes, and recent news.

2. Implications for Thesis and Valuation

• Market has de-rated significantly: ONON traded at 70-90x P/E at its peak (+); it now trades at ~43x forward P/E and ~22x EV/EBITDA at ~. This de-rating represents a significant compression that makes the bull case more compelling.
• The debate is about execution, not business model: Both bulls and bears agree On's business model is attractive. The debate is whether: (a) tariffs and FX will sustainably impair margins; (b) APAC can maintain 50%+ growth for 2-3 more years; (c) the co-CEO founder transition executes smoothly.
• Consensus is firmly bullish (83-88% Buy): Street sees ~-60 target price vs. current — 33-51% upside. The bear case is a minority view but it is well-articulated and cannot be dismissed.

3. Objective

Define the bull and bear arguments, identify the key debate drivers, and establish the catalyst calendar that will prove or disprove each side. This step feeds Step 15 scenario modeling in /complete-coverage.

4. Narrative Analysis

The Debate Structure

On Holding's investment debate is fundamentally about three questions:

Question 1: Can On sustain 60%+ gross margins in a tariff + FX environment?

• Bull: Q3 2025 (65.7%) and Q1 2026 (64.2%) already above the FY2026 guidance floor of 64.5%. Pricing power is stronger than feared.
• Bear: Tariff pressure compounds with FX compression; 2026-2027 may see gross margin retracement to 62-63% if pricing volume effects kick in.

Question 2: Is APAC (especially China) a durable growth engine or a one-time penetration surge?

• Bull: On is at <30% brand awareness globally; China specifically has a large affluent middle class with appetite for premium Western athletic brands; DTC-first in China is margin-accretive.
• Bear: China consumer nationalism (guochao), US-China trade tensions, and the market's own cyclicality could compress APAC growth from 96% to 20-30% within 2 years.

Question 3: Does the valuation multiple hold as growth moderates?

• Bull: At , On trades at 22x EV/EBITDA and 3.8x EV/Revenue — reasonable for a brand growing at 20%+ CC with expanding margins. 50-60% upside to -65 over 12-18 months.
• Bear: Even at , On is priced for perfection in a revenue-heavy multiple (3.8x EV/Revenue). If growth decelerates to 15%, the multiple could compress to 2.5-3x EV/Revenue, implying -30 stock.

Catalyst Calendar

Near-term (6-12 months):

• Q2 2026 earnings (August 2026): First full-tariff quarter in 2026; acid test for gross margin guidance ≥64.5%
• Q3 2026 (November 2026): APAC growth trajectory; will deceleration be sharp or gradual?
• FY2026 full-year results (March 2027): Validates or refutes ≥CHF 3.44B guidance

Medium-term (12-24 months):

• Apparel reaching 8-10% of sales: Margin-accretive mix shift catalyst
• US tariff resolution/trade deal: Could be a significant positive catalyst if Vietnam tariff reduced from 20% to 10-15%
• APAC own stores opening in China: DTC-first China strategy becoming visible in store count
• CHF/USD reversal: If CHF weakens toward 0.85, reported growth accelerates significantly

5. Evidence and Sources

• Consensus file: Analyst ratings, price targets, key themes [S4]
• 20-F FY2025: Risk factors, financial guidance [S1]
• Investor presentation: Company bull narrative [S3]
• Market overview: Tariff context, industry dynamics [S4b]

6. Assumption Register Updates

7. Tables and Calculations

Bull vs. Bear Summary

Analyst Consensus Summary (May 2026)

Bull Case — 3 Bullets

1. Premium gross margin flywheel intact: Q3 2025 (65.7%) and Q1 2026 (64.2%) gross margins prove tariff offsets (pricing + DTC mix) are more than covering Vietnam duty headwinds. On is on track to exit FY2026 at 65%+ gross margins — an extraordinary level for a volume-scale footwear brand.

2. APAC is 2-3 years into a 10-year opportunity: With global brand awareness below 30% and Asia-Pacific growing +96% from a base of only 17% of sales, On has a multi-year geographic runway that Hoka, NKE, and LULU have proven is achievable for premium performance brands. China DTC-first strategy protects margins even as revenue scales.

3. De-rated valuation creates a compelling entry for a compounder: At ~ (B market cap), ONON trades at 22x FY2025 Adj. EBITDA and 3.8x EV/Revenue for a brand compounding revenue at 20%+ CC with expanding margins and ROIC of 34%. The PEG ratio (P/E 43x / EPS CAGR ~30%) is 1.4x — reasonable for a premium growth brand at this stage of development.

Bear Case — 3 Bullets

1. Tariff + FX double headwind could compress margins and slow revenue for 2-3 years: The combination of 20% US-Vietnam tariff (affecting ~53% of revenue) and CHF strength (-8pp on reported growth) creates a real risk that FY2026-2027 reported revenue growth slows to 10-14% for 2+ years. At that growth rate, the current 22x EV/EBITDA is difficult to sustain, and multiple compression to 14-16x could halve the stock from peak.

2. Founder co-CEO transition is an unquantified governance risk: Maurer built the operational and wholesale infrastructure over 12 years. Allemann and Coppetti are brand and product visionaries, not traditionally operational executives. Any sign of execution stumble (inventory mismanagement, retail store economics deteriorating, key executive departures) in the first 12-18 months of the transition will be disproportionately punished by the market.

3. Valuation requires perfection in a volatile environment: Even at (down 35% from peak), ONON is priced at 43x forward earnings for a company facing tariff headwinds, FX compression, and management transition simultaneously. If any one of these factors disappoints, the multiple can compress rapidly — the stock was at in early 2026 (52-week low) and could retest that level on a bad quarter.

8. Open Questions and Data Gaps

1. China revenue breakdown: Is China 50%, 70%, or 90% of APAC revenue? This determines APAC concentration risk.
2. Consumer elasticity data: How elastic is On's core consumer to a 7% price increase? No public data; inference from Q1 2026 volume trends post-price increase would be the indicator.
3. CFO vacancy: Has On appointed a new CFO to replace Hoffmann? Not disclosed in current filings.

Source Index