Executive Summary / Key Takeaways
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LightSpray Technology Represents a Structural Moat: On's robotic manufacturing process reduces 200 assembly steps to one, cuts CO2 emissions by 75%, and enables 30-fold production capacity scaling in 2026. This represents a potential cost-structure transformation that could permanently widen gross margins while competitors remain trapped in traditional labor-intensive models.
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APAC Growth Engine De-Risks the Americas Concentration: With 106.7% constant-currency growth, APAC now represents 17% of sales and is approaching the CHF 1 billion mark. This geographic diversification reduces On's dependence on the tariff-exposed U.S. market while capturing the "movement class" demographic shift in younger, wealthier Asian consumers.
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DTC and Apparel Create a Self-Reinforcing Premium Ecosystem: Direct-to-consumer sales grew 39.9% and now represent 41.8% of revenue, while apparel surged 75.5% and became the entry point for 10% of new customers. This channel shift structurally improves margins and builds higher lifetime value, as omnichannel customers buy more frequently with larger baskets.
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Tariff Resilience Proves Pricing Power Is Real, Not Theoretical: Despite a 20% Vietnam tariff affecting 90% of footwear, On raised 2026 gross margin guidance to at least 63% and maintained 23% growth targets. This validates management's premium positioning thesis—On is expanding the market for true performance-lifestyle fusion rather than competing directly with mass-market incumbents.
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Leadership Transition Is the Critical Swing Factor: The May 2026 return of co-founders David Allemann and Caspar Coppetti as co-CEOs, alongside new CFO Frank Sluis, introduces execution risk but also potential upside. Founder-led vision could accelerate LightSpray and APAC expansion, while any misstep in the handover threatens the 30.5% three-year CAGR trajectory.
Setting the Scene: The Movement Class and the Premium Disruption
On Holding AG, founded in 2010 in Zurich and incorporated as the ultimate holding company in 2012, began with a global mindset that now defines its competitive advantage. While Nike (NKE) and adidas (ADS) spent decades building volume-driven mass-market machines, On engineered a premium ecosystem from day one, expanding into Europe in its first year, the U.S. in 2013, and Japan the same year. This was a deliberate strategy to capture the societal shift from "leisure class" to "movement class," where health becomes wealth and longevity becomes luxury.
The athletic footwear market, dominated by Nike's 27-30% share and adidas's 11%, has long been a scale game. Yet On operates in a different segment entirely. With less than 2% global market share but 35.6% constant-currency growth, On targets the "ageless athlete" who views sportswear as identity, not utility. This positioning fundamentally changes the pricing equation. When Nike struggles with 40.8% gross margins amid promotional pressure and adidas manages 51.7%, On delivers 62.8%—a 1,000+ basis point premium that reflects true pricing power.
The industry structure reveals why this gap exists. Traditional competitors rely on wholesale partners and seasonal volume, creating a promotional cycle that erodes margins. On's strategy—building direct relationships through 67 owned stores and a high-growth e-commerce platform—captures the full premium while collecting data to refine product and pricing. The result is a business model where full-price execution remains firm even during highly promotional periods in the Americas.
Technology, Products, and Strategic Differentiation: LightSpray as the Cornerstone
LightSpray technology is not an incremental improvement—it's a radical reimagining of manufacturing economics. A robotic arm spins a 1.5-kilometer continuous filament into a perfect-fit upper in three minutes, replacing 200 assembly steps with one. This matters for three reasons that directly impact the investment thesis.
First, cost structure transformation. Traditional shoe uppers require multiple suppliers, manual stitching, and quality control across dozens of touchpoints. LightSpray consolidates this into a single automated process, reducing labor costs and defect rates while enabling nearshore production. The new Busan facility's 30-fold capacity increase moves LightSpray from breakthrough concept to meaningful commercial reality, starting with the Cloudmonster franchise. If On can scale this to mass-market models, gross margins could expand beyond the already industry-leading 62.8%—a structural advantage competitors cannot replicate quickly.
Second, sustainability premium. Generating 75% less CO2 aligns with the "movement class" values of health and environmental consciousness. This is a tangible differentiator that justifies premium pricing. When Hellen Obiri won the New York City Marathon in Cloudboom Strike LightSpray shoes, breaking a 22-year-old course record, it validated performance claims while reinforcing the sustainability narrative. Competitors like Nike and adidas, with legacy supply chains optimized for volume, face years of retooling to match this footprint.
Third, speed and customization. LightSpray enables rapid prototyping and regional customization without retooling entire production lines. This allows On to respond faster to local trends—critical in APAC where Chinese New Year traffic more than doubled and Tokyo Ginza became a top-10 global store within months of opening. While competitors face 6-12 month development cycles, On can iterate in weeks, capturing fleeting cultural moments that drive premium pricing.
The broader product ecosystem reinforces this moat. CloudTec , CloudTec Phase, Helion superfoam, and Speedboard create a technology stack that competitors can't easily replicate. The Cloudsurfer 3, launching in 2026, promises 15% lighter weight, 20% softer feel, and 15% more energy return—improvements that compound to create a meaningfully better running experience. This continuous innovation cycle, funded by CHF 10.6 million in R&D, ensures that On stays ahead of alternatives from Hoka (DECK) or Brooks.
Apparel's 75.5% growth transforms On from a footwear brand into a head-to-toe premium sportswear ecosystem. Over 60% of apparel sales flow through DTC channels, structurally improving the mix. More importantly, apparel is becoming the primary acquisition channel for younger consumers, with the share of new customers entering via apparel growing from 6% to 10%. These customers buy more frequently and with larger baskets, increasing lifetime value. In Shenzhen, the largest China flagship captures a high Gen Z share with over 20% apparel penetration—proving the model works in competitive consumer markets.
Financial Performance & Segment Dynamics: Evidence of a Working Flywheel
On's CHF 3.01 billion in 2025 revenue, growing 35.6% constant currency, is driven by significant channel shifts. The 33.7% DTC growth (39.9% constant currency) outpaced wholesale's 27.5% (32.6% constant currency), lifting DTC's share to 41.8% from 40.7%. This mix shift is significant because DTC gross margins exceed wholesale by approximately 20-25 percentage points. Every 100-basis-point shift to DTC adds roughly CHF 7.5 million to gross profit—capital that funds R&D and retail expansion.
The Americas, representing 57.7% of sales, grew 23.4% constant currency despite being On's most mature market. This demonstrates that premium positioning isn't saturating. Management noted particular strength in core running franchises within D2C and exceptional demand across wholesale, with key account partners expanding space and elevating presentation. When wholesale partners voluntarily give more floor space during promotional periods, it signals genuine consumer pull.
EMEA's 34.7% constant-currency growth to CHF 762.7 million reveals a market still in early innings. The German-speaking region, UK, and Southern Europe all showed strong momentum, while the first distributor-owned store in Riyadh generated exceptional consumer response. This suggests On's premium positioning transcends Western cultural contexts, opening a path to high-net-worth demographics in the Middle East.
APAC's 106.7% constant-currency growth is the most important geographic story. At CHF 511.1 million, it's now 17% of sales and approaching the CHF 1 billion threshold. China alone has 38 stores, and the market structure supports a larger network than Western markets. The region's triple-digit growth in Greater China, South Korea, and Southeast Asia represents a fundamental shift in how Asian consumers view premium performance lifestyle brands. This diversification reduces On's exposure to U.S. tariff policy and captures a younger demographic that represents the future of global consumer spending.
The gross margin expansion to 62.8% from 60.6% is notable given the tariff environment. Management attributed this to operational efficiencies in freight, favorable FX, and the DTC mix shift. The deeper implication is pricing power. When On raised prices on the Cloud 6 by $10 without seeing demand sensitivity, it proved the brand occupies a unique position above the promotional fray. This pricing power, combined with LightSpray's future cost reductions, suggests gross margins could sustain above 63% even if tariffs persist.
SG&A expenses reflect intentional investments. Selling expenses increased to 8.6% of sales from 7.3% due to retail expansion, while marketing rose to 12.5% from 11.9% for brand building. These are investments in the flywheel. The 20% increase in sales productivity per store in 2025 demonstrates that retail spending generates disproportionate returns. Meanwhile, distribution expenses fell to 10.7% from 12.4% due to warehouse automation, showing that operational leverage is compounding.
The balance sheet provides strategic flexibility. CHF 1.02 billion in cash, no debt, and an undrawn CHF 700 million credit facility mean On can fund LightSpray scaling, APAC store expansion, and inventory builds without diluting shareholders. The CHF 419.8 million in inventory represents 18.9% of net sales—well-managed for a 35.6% growth business.
Outlook, Management Guidance, and Execution Risk
Management's 2026 guidance—at least 23% constant-currency growth and 63%+ gross margin—signals discipline. The three-year CAGR of at least 30.5% from 2023-2026 exceeds the 26% target set at the 2023 Investor Day, showing consistent over-delivery. The implied slowdown to 23% suggests management is accounting for a higher base and potential tariff impacts.
The gross margin guidance is a key signal. At least 63% despite full tariff impact indicates that premium positioning and LightSpray efficiencies can offset cost pressures. Management's commentary suggests that operational leverage, not further pricing increases, will drive margin expansion. This shows the business model's durability—if tariffs persist, On can absorb them; if they ease, margins expand further.
The leadership transition effective May 1, 2026, where co-founders David Allemann and Caspar Coppetti become co-CEOs, is a critical factor. Founder-led companies often accelerate vision and risk-taking—critical for LightSpray scaling and APAC expansion. However, the transition of Martin Hoffmann to an advisory role introduces execution risk. The appointment of Frank Sluis as CFO brings public company experience, but the co-CEO structure could create decision-making friction.
The functional currency change to USD effective January 1, 2026, is operationally sensible given 57.7% of sales are Americas-denominated. While this reduces natural hedging benefits from a CHF functional currency, it better aligns reporting with economic reality. The presentation currency remains CHF, so investors must still navigate conversion noise, but the underlying business becomes easier to model.
Risks and Asymmetries: What Could Break the Flywheel
Supply Chain Concentration: With 90% of footwear and 65% of apparel produced in Vietnam, On faces a 20% reciprocal U.S. tariff that competitors with diversified sourcing can partially avoid. While management has mitigated this through price increases and operational efficiencies, any escalation beyond 20% could compress margins faster than LightSpray can scale. On's manufacturing geography remains a strategic vulnerability compared to the global footprints of larger rivals.
Single-Brand Dependency: Unlike the multi-brand portfolios of Nike or Deckers, On bets entirely on one brand aesthetic. If the "movement class" trend evolves away from technical-performance lifestyle toward pure fashion, On lacks diversification. While apparel helps, 93% of revenue remains footwear-dependent. A misstep in core running innovation could be significant.
Scale Disadvantage in R&D and Distribution: Nike spends billions on R&D and maintains relationships with thousands of retail doors. On works with fewer than 30 suppliers and six partners accounting for 70% of production. While this focus enables faster innovation, it also creates concentration risk. If a key supplier fails or a major wholesale partner reduces doors, On's smaller scale provides less cushion.
LightSpray Execution Risk: The Busan facility's 30-fold capacity increase is a massive bet. If LightSpray production yields are lower than expected, or if the technology can't scale beyond elite super shoes to mass-market models, the margin expansion story faces headwinds. The technology must prove itself across the entire portfolio to realize its full economic potential.
Leadership Transition Execution: The co-founder return could reinvigorate vision but also destabilize operations. Hoffmann delivered consistent guidance raises and operational improvements; Allemann and Coppetti must maintain this discipline while accelerating LightSpray and APAC expansion.
Competitive Intensity: Analysts have warned that premium positioning alone may not sustain price-led growth without risking demand. Hoka is expanding aggressively in the cushioned running segment, lululemon (LULU) is capturing apparel spend, and Nike's turnaround efforts could reinvigorate innovation. On's 43.46 P/E multiple leaves little room for competitive missteps.
Valuation Context: Premium Pricing for a Premium Flywheel
At $33.03 per share, On trades at a 43.46 P/E ratio, 2.90 price-to-sales, and 31.09 price-to-free-cash-flow. These multiples must be evaluated against the growth and margin profile.
The EV/Revenue multiple of 2.72x compares to Nike's 1.47x and adidas's 1.15x. This premium is supported by On's 35.6% constant-currency growth versus Nike's recent stagnation and adidas's 13% growth. On's 62.83% gross margin is significantly higher than Nike's 40.81% and adidas's 51.61%. This margin advantage means every dollar of revenue generates more gross profit, supporting higher valuation multiples.
The EV/EBITDA multiple of 19.53x is nearly identical to Nike's 19.59x despite On's smaller scale, suggesting the market recognizes On's superior growth-adjusted profitability. With a 2.15 beta, On is more volatile than Nike (1.32) or adidas (1.20), reflecting its growth-stock profile and smaller market cap.
The balance sheet strength—CHF 1.02 billion in cash, no debt, and a 2.71 current ratio—provides a valuation floor. Unlike Nike's 0.79 debt-to-equity or adidas's 0.91, On has zero financial leverage risk. The premium valuation is supported by operational excellence and growth rather than financial engineering.
The key valuation question is whether On can sustain 20%+ growth while expanding margins. If LightSpray delivers on its cost-reduction promise and APAC continues triple-digit growth, the current 43.46 P/E could compress through earnings growth. The market is pricing in a 30.5% three-year CAGR and margin expansion to 63%—a high bar that management has historically met.
Conclusion: The Flywheel's Durability Test
On Holding has built a self-reinforcing premium ecosystem where technological innovation, geographic diversification, and channel optimization create sustainable competitive advantages. The 35.6% constant-currency growth, 62.8% gross margins, and successful navigation of 20% Vietnam tariffs prove that pricing power is deeply embedded in the brand's identity. LightSpray technology represents a potential step-change in manufacturing economics that could widen the margin gap with competitors for years.
The APAC region's 106.7% growth de-risks the Americas concentration while capturing the "movement class" demographic that defines modern luxury. DTC expansion and apparel acceleration create higher lifetime value customers who enter through lifestyle products and migrate to performance footwear. This flywheel generates the cash flow—CHF 359.5 million in operating cash flow and CHF 1.02 billion in cash—to fund LightSpray scaling and store expansion without dilution.
The critical variable is execution through the leadership transition. Co-founders Allemann and Coppetti must maintain operational discipline while accelerating the vision. The May 2026 handover will be the first real test of whether On's culture is institutionalized or founder-dependent. Any slowdown in store openings, LightSpray deployment, or margin expansion would signal that the flywheel is losing momentum.
For investors, the thesis hinges on three factors: LightSpray's commercial scaling beyond elite models, APAC's continued triple-digit growth, and the leadership transition's seamless execution. If On delivers on its 23% growth and 63% gross margin guidance, the current premium valuation will compress through earnings growth. The next twelve months will determine whether On is a generational premium brand or a well-executed cyclical growth story.
