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Analyst: Buy Nike Stock Because NBA-China Fiasco Won't Hurt Brand

Analyst: Buy Nike Stock Because NBA-China Fiasco Won't Hurt Brand
(Alexey Novikov/Dreamstime)

By    |   Friday, 11 October 2019 09:33 AM

One analyst says savvy investors will continue to buy Nike shares despite the recent controversy involving the National Basketball Association and China.

Meanwhile, Houston Rockets sneakers and other merchandise were pulled from several Nike stores in major Chinese cities amid the furore surrounding a tweet from the team's general manager in support of anti-government protests in Hong Kong.

Managers at five Nike stores in Beijing and Shanghai told Reuters during visits on Thursday they had been told in recent days via a memo from management that all Rockets merchandise had to be removed. Reuters was unable to view the memo.

Although Rockets general manager Daryl Morey has since apologized for his tweet last week, National Basketball Association (NBA) Commissioner Adam Silver further angered authorities when he said the league backed Morey's right to exercise his freedom of expression.

Susquehanna analyst Sam Poser argued that the recent selloff in Nike shares amid the controsersy is a buying opportunity, Barron's reported.

“Concerns surrounding the impact of China's spat with the NBA on Nike’s business in China are overblown…Proprietary checks indicate that the Nike brand in China remains exceptionally strong; Chinese consumers perceive Nike as a global athletic brand, not associated with any country or part of the world.”

He argues that Nike has been building its brand in China for more than 30 years, and has created deep relationships with the government and consumers that seem unlikely to be shaken by recent events.

Poser reiterated a Positive rating and $106 price target on Nike, writing that he doesn’t think the company will “experience any adverse repercussions from Chinese consumers due to the recent NBA spat and overall political turmoil between China and the U.S.”

Nike shares (NKE) were 1% higher early Friday at $94.

Meanwhile, the stakes are high for NBA, whose league business in China is said to be worth more than $4 billion. The world's most populous nation is Nike's top source of revenue growth as other regions slow, Reuters explained.

Three Nike stores in Shenzhen also kept Rockets merchandise off the shelves, as well as NBA products in general, staff told Reuters by phone. Three Nike stores in Chengdu, a bustling inland city in southwest China, also removed Rockets products.

Nike and its China office did not respond to multiple Reuters requests for comment.

A specialist NBA store at Super Brand Mall, a major shopping center in the Shanghai financial district of Lujiazui, has also removed all Rockets-related merchandise.

"Other stuff, there hasn't been any impact, and no one has said we need to withdraw it," said a store manager, laughing. "If they say that all NBA stuff has to be withdrawn then our store will go bankrupt."

At two basketball-themed NBA Playzone family entertainment centers in Shanghai and Beijing opened by NBA China, staff confirmed that Rockets products had been removed.

"Rockets products were hot before and when you stepped into the store, it was full of red. Now, it is mostly yellow and blue," the colors of the Golden State Warriors, said a manager at the Shanghai Playzone, who like the NBA store employee declined to be identified because of the sensitivity of the issue.

NBA China did not immediately respond to a Reuters request for comment about the entertainment centers.

WIDER BACKLASH

Major Chinese e-commerce platforms Alibaba and JD.com have taken Houston Rockets merchandise off their sales platforms, including mobile apps.

Searches for sneakers with the NBA logo on Alibaba and JD.com also yielded no results. Those include collaboration sneakers marketed with brands such as Nike and Carlyle-backed Supreme.

A handful of individual online merchants still sell the sneakers.

Alibaba, which declined to comment, told domestic media that Morey's comments had seriously hurt the feelings of the Chinese people, and that there was no room for negotiation.

JD.com, which also did not comment, told local media that the firm deeply resented and strongly condemned Morey's remarks.

Two of the largest online resale marketplaces for sneakers in China have also removed all branded shoes connected to the NBA, according to four sneaker traders.

Poizon and DoNew, two mobile shopping apps popular among fans of designer sneakers, have taken NBA shoes off their platforms, traders said.

A Reuters search on Poizon and DoNew's apps with the keyword "NBA" returned no results.

Poizon did not respond to an emailed request for comment and phone calls to DoNew's office in Shanghai went unanswered.

"As long as the bosses of Nike and Adidas don't come out and say something stupid and get banned by China's central government, I think sneaker resales in China will remain pretty profitable," said Zhu Junwen, a reseller in Guangzhou.

Adidas is in the middle of a reported $200 million, 13-year endorsement contract with Houston Rockets star guard James Harden, who is the centerpiece of the apparel maker's basketball shoe lineup.

"But if (Nike and Adidas get banned), that would be the end of it," Zhu said. 

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One analyst says savvy investors will continue to buy Nike shares despite the recent controversy involving the National Basketball Association and China.
nike, stock, nba, china
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2019-33-11
Friday, 11 October 2019 09:33 AM
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