It’s an indication of just where the stock market is at the moment that Nike (NYSE:NKE) can end a valuable distribution agreement and see its stock go up.
That’s what happened when Nike announced it would no longer sell its gear on Amazon (NASDAQ:AMZN). Nike shares rose 2%, a gain of over $2.8 billion in market capitalization. Amazon, meanwhile, was down 1.4%, a loss of about $12 billion.
Year-to-date, Nike shares are up 24% while Amazon shares are up just 17%.
Amazon may be the bigger story. The stock has becalmed in a market that’s rocketing upward. The average Dow Jones Industrial Average stock is up 19% in 2019 and even Walmart (NYSE:WMT) is up almost 33%.
Why Nike Dumped Amazon
Nike launched what it called a pilot program to sell its goods on Amazon in 2017. A year later it made Heidi O’Neill head of its direct-to-consumer business.
She put on a big TV smile this week to throw shade at Amazon, saying her company wants to build an “unbreakable relationship” with customers. Amazon wasn’t part of the relationship. But Nike is still hot on Walmart. It has its own section at Walmart.Com, offering everything from jerseys and slippers to the latest Air Force 1 sneaker.
Generally, however, Nike is trying to sell more directly. It has an app called Snkrs and it opened a digital studio on Manhattan’s Pier 17. There are nearly 1,200 Nike stores, two-thirds of them outside the U.S. There’s the NikePlus membership program and a subscription service for kids, the Nike Adventure Club, with a phone-based tool for measuring feet.
In fiscal 2019 Nike’s direct-to-consumer revenue was $11.8 billion, driven by a 35% increase in e-commerce sales. That’s more than one-quarter of total revenue, which came to $10.8 billion in the most recent quarter.
Why Everyone Hates Amazon
The flight from Amazon could just be starting.
The death of retail seems exaggerated, as stores like Dick’s Sporting Goods (NYSE:DKS) and Foot Locker (NYSE:FL) continue to thrive. Brands find they get sales from Amazon, but not data. It’s data that they now want more than anything.
Analysts are looking for reasons why Amazon stock isn’t moving. Maybe Prime isn’t as profitable as it was. Maybe the AWS Cloud has hit its full potential. Amazon’s off-line efforts still pale in comparison to China’s Alibaba (NYSE:BABA). It has acknowledged this by launching a new “not Whole Foods” grocery chain.
Amazon’s home city of Seattle is pushing back against the company. Home prices near its new location in Northern Virginia are up 21% in a year. Microsoft (NASDAQ:MSFT) took a $10 billion U.S. Department of Defense contract Amazon had been expected to win.
Still, Amazon’s revenue was up 24% year-over-year in its most recent quarter. Amazon had operating cash flow of $26.6 billion over the last 12 months.
AMZN stock now sells at a trailing price-to-earnings ratio of just 78, and for barely 3 times its sales. Nike’s P/E is up to 34, and the stock sells for 3.7 times its sales, although it also sports a 22 cent per share dividend.
The Bottom Line on Nike Stock
It’s hard for me to see how Nike is a more attractive proposition than Amazon.
But lots of stocks have been rising in 2019 by proving they can survive the e-commerce giant’s effects on the market. In addition to Walmart’s 33% gain, Microsoft is up 45% year-to-date. Target (NYSE:TGT) is up 68%.
My guess is that this is a change in fashion, not a long-term trend. If you have wanted to buy Amazon in the past but found it too expensive, this is your chance.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN, BABA and MSFT.
