Will Nike suffer from the NBA’s conflict with China?
The NBA’s public strife with China has dominated the headlines, will Nike be one of the victims?
It all started with a tweet. In 2019, this prologue can be lifted from the story of an international conflict just as easily as that of a teen drama on your TV screens. We’re closer to the former than the latter with today’s story which may disappoint many of you. The tweet in question is from Houston Rockets GM Daryl Morey, one of the perennial contenders for the coveted NBA championship. He tweeted a message in support of the protests in Hong Kong which led to widespread outcry from the Chinese public.
Repercussions were swift as Rockets merchandise was removed from online stores and coverage of their games suspended by tech giant Tencent Holdings. The parent company of WeChat went on to further suspend broadcasts of the NBA pre-season, putting pressure on the $1.5 billion deal it has with the NBA to stream its games to a market of around 500 million people.
How does this affect Nike’s stock price?
China is Nike’s (NYSE: NKE) fastest-growing market with sales of over $6 billion in the fiscal year 2019. Nike is also the official apparel supplier of the NBA, with a deal spanning 8 years worth roughly $1 billion dollars. Skin in the game for the Swoosh.
Nike’s stock, which has recently hit all-time highs thanks to a positive Q1 report for 2020, took a hit on Tuesday thanks to the conflict. What it does next will depend on the strength of the Nike brand in China. The perception of Nike in China is a global brand rather than an American one, with Nike doing a tremendous amount of work over the past 30 years to maintain its presence in the region. As a result, analysts remain bullish on the stock, with Susquehanna’s Mike Poser reiterating a $106 price target and stating the company won’t “experience any adverse repercussions from Chinese consumers due to the recent NBA spat and overall political turmoil between China and the U.S.”
The one trick to surviving the current volatility of the Chinese market? 30 years of international brand development and relationship building within the region.