Does Nike Make Money?

Does Nike Make Money?

It is time to ask does Nike make money because of all the free publicity the shoemaker is receiving because of its relationship with controversial quarterback Colin Kaepernick.

Strangely, Nike (NYSE: NKE) is pulling shoes with an American Revolutionary War flag because of a complaint from Kaepernick. Specifically, Kaepernick thinks the shoes are racist because many of America’s Founding Fathers were slave owners, The Associated Press reports.

Nike’s Strange Relationship with Colin Kaepernick

The flag flap is only the latest controversy surrounding Nike and Kaepernick. The shoemaker began using Kaepernick as the face of an ad campaign last year. That action is surprising because Kaepernick has not played in the National Football League (NFL) since 2016.

Kaepernick claims no NFL team will hire him because he kneeled; or refused to rise, during playing of America’s national anthem as a protest in 2016. To clarify, Kaepernick and others were protesting police shootings of African Americans. However, many Americans including President Donald J. Trump (R-New York) find Kaepernick’s behavior unpatriotic.

In 2017, Kaepernick filed a grievance against the NFL in which he alleges team owners are conspiring to keep him out of the game. Interestingly, The New York Times reports the NFL secretly settled with Kaepernick and teammate Eric Reid in February 2019. Details of that agreement are unknown.

Is the Kaepernick Controversy a Brilliant Marketing Strategy?

Nike’s use of Kaepernick as a brand ambassador is a brilliant marketing strategy. Hundreds of news outlets mentioned Nike’s new line of sneakers and showed pictures of the controversial shoes because of the Revolutionary War flag controversy.

Moreover, cynics will note the controversy took place just in time for America’s national holiday; the Fourth of July. For example, many news stories about the controversy appeared on 3 July 2019. Thus, Kaepernick’s actions seem designed to take advantage of the news cycle.

Additionally, Nike is taking advantage of the Colin Kaepernick brand which appeals to young men, particularly young men of color. Notably, young men of color are likely to be active in athletics and Kaepernick fans.

How Kaepernick critics Give Nike Free Advertising

Plus, critics of Kaepernick like President Donald J. Trump (R-New York) give Nike vast amounts of free publicity by attacking the quarter back. Twitter calculates that the Real Donald J. Trump had 61.8 million Twitter followers on 8 July 2019.

Therefore, a Trump tweet about Nike and Kaepernick could reach nearly 62 million people. In addition, Kaepernick himself has 2.35 million Twitter followers.

Other celebrity Kaepernick critics like country music star John Rich generate more publicity with their actions. Rich; for instance, Tweeted pictures of the destruction of Nike socks to his 212,000 Twitter followers.

Consequently, Kaepernick haters like Trump and Rich are giving Nike free advertising. Moreover, that advertising could be worth millions of dollars. For instance, Rich told 212,000 followers about Nike socks and even showed a picture of them.

Hiring Kaepernick is a Brilliant Marketing Strategy

Meanwhile, Trump’s attacks on Kaepernick could raise Nike’s stature with the 54% of Americans who disapprove of the President. To elaborate, Gallup estimates 54% of Americans disapprove of Trump’s performance and 44% of Americans disapprove of Trump strongly. Plus, only 41% of Americans approve the President.

Thus, 69% of Americans could sympathize with Kaepernick. Under those circumstances, hiring Kaepernick is a brilliant marketing ploy for Nike.

Oddly, I think Trump knows of this but does not care because of all the free publicity he receives. In particular, the President can appeal to anti-black voters without appearing visibly racist.

Therefore, hiring Kaepernick is a brilliant marketing strategy for Nike. In particular, Nike can take advantage of all the publicity and controversy Trump generates without having to associate with the President. Instead, Nike can portray itself as a hero standing up for freedom and opposing the racist bully Trump.

On the other hand, the risks Nike takes are slight because most people do not want help Trump. Moreover, even Kaepernick critics are loath to attack Nike because they do not want to be branded racists, enemies of free speech, and un-American.

Nike is a Great Brand

The Kaepernick controversy proves that Nike is a great brand with a brilliant management that understands the dynamics of modern marketing.

Statista estimates Nike’s brand value grew from $28.03 billion in 2018 to $32.421 billion in 2019. Thus, Kaepernick could have added $4.391 billion in value to the Nike brand.

Given this history, Nike (NYSE: NKE) is a growth stock because management knows how to create brand value. However, cynics will note that sooner or later the Kaepernick controversy will fade. For instance, Nike could lose value if Trump loses next year’s presidential election and leaves the White House.

Conversely, Nike could receive tens of millions of dollars’ worth of free publicity between now and November 2020. To elaborate, Trump could publicize Kaepernick and Nike with dozens of Tweets and sound bites at no cost to Nike. The media will magnify those Tweets and sound bites by repeating them dozens or hundreds of times.

Not coincidently, the latest Kaepernick controversy began less than two weeks after Trump launched his reelection campaign on 18 June 2019. Cynics will wonder if Nike is trying to cash in on the Presidential campaign. Additionally, the flag controversy began less than a week after the first round of Democratic presidential debates.

Is Nike Making Money?

Nike is a great brand with a brilliant marketing organization, but value investors will ask is it making money?

Currently, the answer is yes. Nike reported a gross profit of $4.339 billion on revenues of $9.661 billion on 28 February 2019. Moreover, Nike reported an operating income of $1.248 billion and a net income of $1.101 billion on the same day.

Importantly, Nike’s revenues are growing. For example, Nike reported a revenue growth rate of 6.98% for the quarter ending on 28 February 2019. Thus, Nike’s strange marketing strategy is working and growing the company’s business.

Plus, Nike is generating cash from its bizarre marketing efforts. Nike reported a free cash flow of $853 million, an investing cash flow of $124 million, and an operating cash flow of $1.068 billion on 28 February 2019.

As a result, Nike had $3.695 billion in cash and equivalents and $351 million in short-term investments on the same day. Thus, Nike had $4.046 billion in liquid assets on February 28, 2019. That is a lot of cash for a consumer brand.

Is Nike a Value Investment?

I consider Nike a value investment under these circumstances. Specifically, I think Mr. Market underpriced Nike at $88.48 a share on 8 July 2019.

My belief is Nike’s growth potential could make the stock worth another $20 or $30 because of the growth brand value over the past year. In particular, Nike is one of the consumer brands to figure out marketing and branding in the post-television social media world.

In particular, Nike is successfully and cheaply marketing its products through social media. Plus Nike is brilliantly capitalizing on social and political changes to increase its sales and make more money.

Thus, Nike is a value investment because of its current marketing brilliance. In particular, Nike has figured out how to force retail giants like Amazon (NASDAQ: AMZN) to sell carry its products.

I think Amazon will carry Nike products because it wants all the extra traffic that brand’s presence will bring to its website. Other retailers like Walmart (NYSE: WMT) will follow suit to get attention.

Nike is a Good Dividend Stock

Thus, Nike is both a growth and a value investment. Yet Nike (NYSE: NKE) is also an impressive dividend stock.

Nike shareholders enjoyed a 22₵ dividend on 1 July 2019 as they read about the latest Kaepernick publicity stunt. Moreover, that dividend grew by 2₵ or 10% in 2019, rising from 20₵ on 1 October 2018 to 22₵ on 1 April 2019.

 

Overall, Nike shareholders received a dividend yield of 0.99%, an annualized payout of 88₵, and a payout ratio of 33.5% on 8 July 2019, Dividend.com reports. However, the dividend has only grown for just one year.

Thus, Nike is a great stock to invest in for the changing retail environment and the social media revolution. The Colin Kaepernick drama shows Nike knows how to market its products in the 21st Century. I think the marketing capacity alone adds several billions of dollars in value to Nike.

Originally published at https://marketmadhouse.com on July 8, 2019.

 

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