Coupang (CPNG) & Nike (NKE): 2 Stocks Down 50% That We Still Like

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0:30Emmet:Welcome to Stock Club, the podcast where we find and discuss stocks that anyone can buy, many of which we believe to go on to grow your wealth.

0:46Emmet:We're going to skip next week's episode because Mike and I have to make the worthy journey to the United States of America, where we're spending the week and our schedule is packed which results in our ability to record an episode so we're going to do our best to make this one extra good and what that entails this week folks is talking about a stock we're each going to pick a stock that's in the midst of a big downturn and certainly in my case i think it's very unjust or at least partially unjust how are you doing this week mike i'm good i'm going to look forward to this episode i thought that was funny we kind of we zagged away from ai for a couple of weeks and it seems like everything is happening in the world of ai with entropic ceo writing this essay and them all saying about slowing down it's it's a madhouse so they must have listened to our podcast or like we better slow down on ai and sam altman rang zook and said you know what we should slow down the two lads over in ireland were talking about slowing down maybe maybe we're the catalyst in this whole thing um yeah i don't like the boast but yeah but it just shows the the volatility of the whole thing and maybe for long-term investors there are better avenues to chase right now so that's why we're here that's what we're looking at today again and without going into the whole ai convo like the the fact that the three most influential ai business leaders in the world are all in fierce agreement that we better slow this thing down certainly says that they individually and their teams and experts and advisors can see the direction of travel has a lot of risks.

2:24Emmet:But for three to agree is quite an unusual thing. Well, I do think that if they didn't follow your man from Anthropics lead, that they would look bad. Yeah, I suppose that's true. So there's an element of that, but it is scary. Some horror stories like this, and we never really talked about it properly, but that whole uh open ai autonomously their agents autonomously hacking hug and face like that was really scary yeah that's right that's definitely scared a lot of people inside the industry um but again look this isn't an ai episode and we won't we won't delve too deep here because we're talking about two kind of boring stocks that have basically hit the skids for two very different reasons i think it's fair to say um so i don't think mine is boring mike i think it's really exciting yeah well it's a little less interesting than you know autonomous ai agents going in and hacking another oh well that's true but it's probably and i have no idea what you're going to talk about this week but i i guess it's going to be a little more exciting than lifting garbage and landfills which we spoke about last week well look another man's one man's trash is another man's treasure oh isn't that the truth very appropriate one um but yeah this week do you want to kick off or will i i will i'll kick off i mean and we'll do our usual if you had a hypothetical ten thousand dollars how would you split it across these two stocks question at the bottom of the show so stay tuned folks mike and i when we both have a kind of a fencing match on two stocks we fancy in a category we'll usually finish the show with the how would you invest 10 grand across these two companies so the one i'm going to go with mike is a name list a name familiar to some of our listeners but certainly probably not used by the majority or if at all any of our users and it's called coupang which is a south korean 18.7 sorry 27.2 billion dollar sized company and the reason i'm going to talk about it and i am a shareholder in the business and i am an admirer of the business and its opportunity which I'm going to elaborate on in the next few minutes, is that Coupang's shares have fallen by at least 50 % from their 52-week high.

4:44Emmet:So as we record now, they're about 15 bucks and change, and there were at least 33 bucks only a few months ago. And that's really a dramatic downturn for any company that has spent years becoming what they've become. but in Coupang's situation, it has become an indispensable part of daily life in South Korea. It is better described, or often described at least, as the Amazon of South Korea. And for anyone who lives in our part of the world, Amazon is something you probably interact with on a daily basis, if not through the Amazon app, through many other interfaces. So Coupang is the Amazon of South Korea and South Korea, for those who are totally geographically unaware, is as first world as anywhere else.

5:35Emmet:So the obvious assumption when you hear that a company is falling by 50 % is that something's gone badly wrong with the business model or its customers. But recent... Something did go badly wrong with its customers. Yes, it did. I mean, yes, it did. It did. And we got to go there. But Coupang is, as I said, it's the Amazon of South Korea. That's kind of the starting point. And when you hear of a data breach in a business, which we'll talk about, it's never a good look. You don't celebrate it. But if the utility offered by that business is of such a high value, I think majority of consumers have a short memory and hope they've just got a handle on it.

6:18Emmet:But let me rewind a bit. So Coupang sells pretty much everything that it is the Amazon sells. Electronics and household essentials, fresh groceries, both from its own stock and through third-party sellers. And it has a service called Rocket Delivery, where customers can order late at night and receive millions of products, either the following day or even within a couple of hours. I was going to say, isn't there something crazy like 15 minutes? 15 minutes. I think it's the middle of their average bell curve for delivery because these fulfillment centers are spread throughout the entirety of South Korea and obviously in very strategically smart locations in the biggest cities.

7:04Emmet:So if you're sitting at home in South Korea, you open up your rocket fresh element of the coupon app and you want a bunch of fresh food dropped at your door, It's going to be there in 15 minutes, which is pretty wild. And you can see how mega convenient that would be for anyone living in an urban or suburban environment. So, like, I mean, imagine realizing at like 11 o 'clock you had a coffee or washing powder or whatever it is you need for tomorrow's lunch. You order it there and then. There's no journey to the shop. uh the kind of life the generations before us have gone to various different stores to buy what it is they need well now that our generation certainly that generation in south korea there's a new habit they open the app they drop the thumb and a habit it's a good way to mention it because i think the the convenience that coupon offers is almost developed because coupang is the pioneer of this service and the convenience it offers is almost developed into like a daily habit with so much of the south korean population obviously not all of them but we'll say like the the wealthy people in in south korea they've become used they've become habitualized to how convenient this service is and it and it's so much so that the expectations get higher and higher and this is when we're talking about that crazy 15 rocket 15 minute delivery service which they actually have which sounds nuts if you think about it it's crazy um so it is it's it's almost through its own service has kind of uh built a habit within uh we won't say the entire south korean population but it is an incredible chunk that are coupon customers but the you can just imagine the logistics required and the investment required to build out a business with that kind of customer promise or at least to fulfill that customer expectation massive warehouses in you would expect expensive real estate locations uh state-of-the-art technology an incredibly advanced delivery infrastructure the last mile also being or the last few yards or meters being particularly challenging you've got to expect so if somebody arrives at your apartment block with two grocery bags full of stuff and they gotta know how to get up to the eighth floor like the amount of logistics to make this business hum is it's mind-boggling and and you can just see why it is so difficult and expensive for a rival to reproduce and it's really why investors have long viewed the network as coupang's competitive advantage including me i mean as an investor i've pitched a stock in horizon it has not performed it's not in the top five or ten in in in the portfolio uh but i still believe it's a wonderful business like it has this wow membership um which is a bit like i remember years ago uh john our colleague and i um did a thing with scott galloway a strategic course with scott galloway and he talked about rundling as a strategic advantage for businesses, a play in the word bundling.

10:22Emmet:And the case example used was Amazon Prime was just, I think it is free as part of your, of course it is. Amazon Prime TV service, streaming service, is included in your Amazon Prime membership. So what they do is they bundle things that have an adjacent value, but when you go to cancel, they come into your frame of thinking and you're like well i won't cancel my amazon prime even though i don't buy anything i don't want to lose access to clarkson's farm and you're drawing on something that's seemingly totally unrelated and they had a whole story it's a stack of stuff amazon but they were the kind of uh forerunners of this model and coupang have followed the same thing so they have this wow membership which adds another reason for customers because once you're paying for the benefits and you're using the service regularly, shopping anywhere else probably feels like an inconvenience.

11:18Emmet:And I don't, firstly, as I've often said in the podcast, like an anecdote doesn't make data. How I behave by no means reflects how everyone else behaves. But in this particular example, I think it is where if I run out of a thing, like maybe tinfoil trays for food that I'm cooking in the oven, my head runs to the Amazon app as a non-perishable thing they can throw in the doorstep as opposed to, oh, I must put it on our grocery list for going to the store. Is that similar to your behavior, Mike?

12:11$75 sponsored job credit at indeed.com slash podcast. That's indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed sponsored jobs. No, not really. I wouldn't.

12:25Emmet:But you're not running a household per se. No, you are. But you're like, yeah. It's just me and me and my girlfriend. Like, so I'm not having to make sure. Yeah. The supplies are there. Exactly. Yeah, yeah. Don't worry about any dependents. but no i wouldn't be as huge an amazon yeah uh user per se but like if there's anything niche i do go to it like for sure yeah well coupon is a coupon coupon is also trying to extend the relationship beyond what i would call as ordinary retail they have a coupon eats no one has to no prize for guessing what they do uh they deliver restaurant meals uh there's a coupon Coupang Play service, which offers streaming and it's expanding its shopping operation in Taiwan.

13:13Emmet:It has a delivery service in Japan called Rocket Now, and it owns the luxury fashion marketplace Farfetch. So it's a business with loads of tentacles into the Farfetch acquisition was a bit random. I'm not sure how that it was into everything. Yeah. And it was you're absolutely right. It didn't feel it felt more like diversification. to use another kind yeah like a made-up word if you like by peter lynch author of one up a mall street he said diversification very often is diversification and i i'm not sure if that far-fetched acquisition is working out but putting that aside these businesses offer possible avenues for future growth so they they now have a proper foothold in many different strands of very well or partially related businesses and they can kind of see where money should follow it's analogous to uh watering a lawn uh or a VC investing in 20 venture capitalists investing in 20 companies when you water a lawn you might see a spring of green appearing before everywhere else and if the only thing that mattered was maximizing something you'd put more water into green as opposed to everything so these businesses can have a stake holding and are full ownership of lots of different uh related businesses and and they can see where their money should go so they do offer lots of avenues for profitable growth so that kind of is a rough and ready explanation of who they are and what they do yeah they where they and where they do it but and on top of that i think we talked about the scale and the amazon comparisons and everything else and i've touched on it but the cultural impact and significance it has in south korea is very important as well oh yeah just just the the culture they have basically taught south koreans to expect now i think it's yes probably their most intangible moat in the whole thing it's funny we in any business nowadays there's a in b2c does a thing called training your customers which i never quite liked the expression because it somewhat reduces your customer base to like a cage full of monkeys but the fact is they have trained their base to have an expectation that the majority of what they need will be dropped at their door or in their letterbox within moments of asking for it which makes it so much more difficult for competitors to recreate entirely and that's what we're seeing with the especially the south korean market despite everything that's happening yeah years ago i was um researching and pitching a company called Luckin Coffee which in a nutshell is the Starbucks of China and you can only buy their coffee through an app or at least when I was looking at it you does the other but they would deliver you a cup of coffee which to me was mind-blowing because frankly you only order a coffee when you want it right now and that's when they got it to you you'd open the Luckin app you'd ask for coffee and next thing there's someone's pulled up on a bike and they're handing you a coffee which is kind of crazy to train a base if you like or a buying base like that anyway so last november coupang disclosed a pretty major customer data breach as i alluded to at the top of the piece and that created a crisis of trust for a company whose entire proposition depends on people feeling comfortable and using it frequently and there was there was a lot of public anger again over here in ireland and i'm sure in the u.s you'd be absolutely fully isolated from even the story you wouldn't even know it's happening but seemingly uh in south korea there was really intense regulatory scrutiny it was news uh there was news on it by the hour and it was a real fear that customers would switch to a whole bunch of competing services who you can imagine suddenly came into the line of sight because there's always a business waiting for to fall and coupang offered affected customers vouchers to encourage them to return but the breach did lead to substantial costs and fines and you and i mike spoke uh spoke about it not in the podcast but with regard to the horizon service and and eyes on horizon i mean we've been keeping a close eye on this so um i guess pointing out as well the scale of the breach so i think the number initially it's almost 33 million people yeah put that into context there i think is the south korean population is only around 50 million people so you've got like basically two-thirds of the entire population it's unbelievable which explains i think the korean regulators reaction which was was most severe in its history wasn't it oh it was and there's no question about it and you get the impression i'm not working off data here but you can imagine it's a fairly uptight regime you know It's a New York style.

18:11Emmet:Seoul is one of the New York cities of Asia, but you can imagine that the regulation is far more stringent than you might find in other markets. But its latest financial results show why investors are nervous. In the second quarter of 2026, revenue reached about$8.9 billion US dollars. us that's just up four percent i mean in a business such as this that is not the kind of toward growth you'd expect you know um and you can see but it was growth i'm gonna hand them that and when you adjust then for the weaker currency uh the underlying growth was 10 percent which is respectable but we don't bank on currency exchange rates for for a long-term investment um however profitability moved sharply as they say in the opposite direction and went down and coupang reported about uh 556 million dollars operating loss which was it was about 410 million dollars of that came excuse me came from korean administrative fines so when a company says hey guess what we lost over half a billion bucks this quarter and the vast majority of that was because we had to pay the regulator um you kind of get a you get a fairly decent view of what how big a deal this was so um so it would be entirely wrong to say that the loss was anything well or at least the majority to do with normal operations it wasn't it was an abnormal event now events are events event is a once-off thing so they wrote i think that would be that would be my 40 000 foot view of this yeah yes only entirely thing i don't know if it's systemic and like there is data to show that people are voting with their feet on the ground as well aren't they yeah and the one thing is the logic would dictate that the chief information officer and their teams haven't i mean this will i mean we don't have a crystal ball but this won't happen again insofar as this has been an atrocity within the business and you can only imagine that they will soon enough be the safest company with your data because they have really really taken it in the neck but that doesn't attract from the fact that if we take away the fine they still lost 146 million dollars at an operating level which is compared to 149 million dollars profit a year earlier so the problem is bigger than just one exceptional check from the go here here's your bill sir what 400 million like i feel like i feel like i'm kind of defending coupon coupang in court here but you know so much of the losses as well were down to the vouchers and the he keeps saying the word coupons coupons handed out yeah to effective customers too um yeah which feeds into the one event kind of thinking on the stock and i like it harkens me back to the crowd strike outage yeah and and that was much quicker um in terms of recovery but like the impact it had definitely followed the stock and the results for about a year yeah in terms of the kind of they're getting sued by one of the major airlines in the u.s there was a lot of um profitability issues in the quarters that came after from these vouchers given out to customers that were affected and all the rest but in terms of the actual business and the business performance it ultimately was a flash in the pan now i think it's more long lasting with coupang because it's a b2c and so consumers would have maybe a a longer memory they would they would feel wronged more personally if that makes sense whereas like if you are microsoft and you need crowdstrike to protect your business and that's it they're the best in class whatever else whereas coupon customers that's a longer turnaround and they've shown that it's been a longer turnaround because their memberships went way down from the breach onwards but seeing it tick back up seeing them hit record uh record payment volume is that right that's right i was just about to mention that yeah seeing all that come into play kind of makes me think yes it was a longer turnaround but it does feel like perhaps we're coming out the other side of this event and the event is the nominal term there yeah yes you're you're absolutely right and i think we're we're both singing from the same hymn sheet because according to estimates uh from a company called mobile index the credit and debit card payments uh on the coupon were jinxed on the coupon network passed five trillion mon in july for the first time which i think we just were discussing something like two 2.4 billion dollars ish um of payments went through their their effectively mobile bank august payments uh went up to nearly five trillion won but there was still uh which was still 12.6 percent higher than a year earlier and the number of monthly app users to your point from a few moments ago it was 36 million in august which exceeded its level before the breach came to light so even though everybody feels hard done by they're not so hard done by that they voted with their feet yeah and yeah they didn't want to give up the convenience that and then it goes back to what we're saying at the start of the head start it has over everyone else and how yeah how difficult that is to to pull back for competitors i mean one of the we there might be a podcast an interesting podcast episode from us uh in the future on interesting giant missteps made by giant businesses that the whole world forgot loads of examples flood into my mind i'm not going to go there but like the world when you're when you've got a a vast buyer's base b2c business consumer and you've millions or tens of millions of customers in this case the world the world is a short memory it just does and apple and chipotle and ibm and you name it disney they've all made terrible mistakes in the past at one point or another but they just put the head down and keep going and try to make good and i think that that's going to ultimately hold water you know the the human condition is to just get on with it um so the figures challenged the idea that the breach caused a permanent exodus there's yeah that ain't that ain't the case and shoppers appear to have returned or indeed never left you know especially that voucher like if you heard amazon had a breach and they described here what that means maybe your name maybe your email maybe indeed your credit card um the first thing you want to hear the next thing you want to hear is what they've done about it and the next thing you want to consider is what does this mean for me but if the next thing you consider is and here's 30 dollar or 30 euro voucher for amazon.com you'd be happily back on the site because you're not going to let the value of that go away um so anyway the question i think now is is not will will coupang be used again or survive this i i think there's a high probability of that i think the question is can coupang turn that usage uh that i described 30 something million people into strong profits and cash flow and the optimistic case is that its delivery network and the habits we discussed built around it have now survived the most severe um test that you could really expect other than a complete hijack by hackers um so i'm i'm i'm actually very i love this business i mean uh the pessimistic case is that coupon has to keep spending heavily to retain the customers that are there um if we continue with pessimism we could say international and new ventures are going to continue to consume the profits that are made by the business that was proven as their thing you could say regulatory scrutiny is going to be continuing cost you may bet it will and um but the things i'm going to watch as a shareholder and as someone who tends to the business through horizon i'm going to watch three things customer spending uh profit margin in core commerce and the free cash flow and it certainly appears to me that the first two are have recovered or at least in the in the process of recovering um and then the other two just they need to prove themselves but what really makes couping an interesting stock now now is that downturn i mean the share price is is clearly telling the story of mega damaged business it's a fire sale and the recent accounts justify a lot of that concern but i think the shopping figures suggest that at the heart of the business is a whole bunch of people who are like, nah, I'll just keep using Coupang and I'll get my head of lettuce and tomatoes thrown at my door because, hey, what the heck, what's happened that has happened.

27:39Emmet:So I'm a buyer at this point is kind of my bottom line. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed sponsored jobs. Yeah, I think it makes a very intriguing risk reward tradeoff at the minute.

28:20It is worth noting before we move on from Kubang as well. It's kind of found itself in the middle of this little geopolitical tug of war between the U.S. and Korea. Yeah, Kubang is a U.S. listed company and it's got a U.S. CEO and it's kind of in this weird, obviously it serves the Korean market, but maybe is viewed kind of as an American company by U.S. regulators, maybe Korean regulators as well. And so there was a bit of back and forth over the scale of the fine and the severity of the punishment from Korean regulators. so that could also be a small just another element to this whole thing of it finding itself in the middle of all this and like maybe even the brand damage to that being viewed as a kind of outsider in the Korean market but again it showed we keep coming back to it the people are voting with their feet their competitors have lost ground on Coupang while Coupang is growing they're they're i don't think they're a tenth of the volume in terms of deliveries between them the next two and three um so yeah it does i i would also be quite intrigued from these points uh for for that bounce back but it won't be smooth either we've both followed the stock there's so many headlines coming out we've been how many translated korean herald articles have you read about couping in the last six months is crazy um but yeah it is i i'm very intrigued from

29:54Emmet:these levels um thank you mike so let's move it on what stock do you have in mind that's taken a beating and probably has some life left in it uh so i know nike nike or nike or nike i say nike you say Nike I do it's very American of you so yeah I think now Nike is probably one of the most publicized downfalls at the minute on the public markets it is yeah and even calls about its survival like I read I'm not going to I don't want to interrupt your flow but there's so many existential conversations going on about the business yeah yeah so shares are at their lowest point since 2014 routine good lord down about 50 percent in the last 12 months and 80 percent since all-time highs in august 2021 that 80 percent like that's equivalent to 200 billion dollars it's lost in value over five years and it's it's nuts really and there's no one catalyst behind the downfall it's a combination of factors that have led it to this point um and look the first is one we've talked about on the podcast a lot and it's just the difficulty of fashion you know yeah yeah it it is by nature it goes by trends and yes unfortunately with trends they don't last at scale or or rather they can't last at scale because if a brand becomes too commonplace it falls out of favor it's not cool anymore it's why like luxury brands value scarcity so much and gucci's parent company uh curing caring is uh it's learning this lesson the hard way at the minute because i don't know about your own personal experience but i've never seen more Gucci products in the wild in terms of like Gucci t-shirts or Gucci flip-flops or Gucci hats but it's certainly not Gucci five grand suits going around and there's that temptation I suppose to scale for a luxury brand and it doesn't work and this is why so many luxury brands will limit their sales Gucci didn't and it's hurting the company big time and Nike is not really it's not a luxury brand at all but it is falling into a similar bracket of you know it became so popular that it evolved from sports clothing to everyday fashion and that movement obviously was hand-hand with kind of the rise of athleisure wear which is understandable but it's why fashion is such a hard industry to invest in because what is the goal is the goal to sell as much product as possible to make as much money as possible that's like you know the goal of a public company but if that happens then you will inherently become uncool which is a death now because if everyone's wearing the same thing then why would anyone want to go and buy it so the day story are you right the storyboard is littered with businesses that just took one or two strategic missteps and the brand and what it stood for just went by the wayside michael kors was a luxury bag maker luxury i think it was handbags and rather than just a pure to the luxury element that started appearing in every other kind of handbag or department store which suddenly reduced the luxury value and that was a strategic misstep um you think about under armor we spoke in this podcast it was the challenger brand it was cool they did things for somewhat niche sports like cleats for climbing and under clothing for footballers american football and then they started putting them in discount warehouses in in those big outlets in the us and next thing what they stood for fell by the wayside and i think nike as you're saying has undergone a similar version of events yeah and look it's so true the degradation of the brand is is key throughout this whole story um and on top of that then as well they made a big push into the direct to consumer or we just call it d2c yeah um that was a big thing from their old ceo john donoghue uh so and when did the big consultancies advise them to do this i forget which one knows i very much see the logic of it too like when this is happening i actually respected the strategy because it's something that we've seen work really well definitely in the luxury space but also in the higher end retail space too and now like blue lemon isn't a good example right now because the stock is in the toilet but one of its key success factors during its rise was the exclusivity factor that you could only buy their leggings in a lulu lemon shop or on their website you know the company can control that entire journey protect the brand save it from ending up in the discounting and discount bin in footlocker or dick's sporting goods or wherever else um which was one of night's main issues with the big box retailers was that you know index or footlocker or wherever else they could go and have a nike sale take the sheen off its brand and all of a sudden you know you can go and be wearing a new pair of shoes for 20 quid or whatever and obviously that hurts the brand yeah yeah yeah so the the goal for donahue uh it's weird saying the american version donahue donahue yeah who is getting a lot of blame for this slide for this slide and the stock's ultimate downfall really was he wanted to take gross margins from 35 % to 50 % with this D2C move.

35:16But ultimately, and I believe this is kind of played out in such a way, is that it overestimated its own brand value. So by taking it out of the shops, by taking it out of people's awarenesses, by basically moving it out of the eyeline, you know, Nike moved out. If you don't see it, you don't buy it. Exactly. So it completely lost its discovery element. Not only that, then they also paved the way for new entrants, like on and Hoka to come in and fill the void. So it's a double whammy. You move out of people's eyesight and then you also let a competitor move in.

35:50Emmet:And shelf space, I think sneakers, runners as we call them, they're still a purchase you prefer to make in the flesh. You want to see them beside the other pair, beside the other pair. You'd like to shape the look, the feel. You got to try them on. Sure, you can buy them online, but it just, you got to kind of see what else is there. well i think and i think you defined the issue as well that it ran into with d2c strategy was that it's great for repeat customers so you don't need to try on you know a pair of Nike shoes if you already own a pair of Nike shoes but there's no marketing spend there they come in it's great margins but where Nike struggled then was the acquisition cost for getting new customers especially do you remember as well they got hit pretty hard when uh it's a couple of years ago it covered on the pod loads when apple brought in that privacy update and the social media advertising kind of went into a tizzy for about a year and so not only did it think okay we're going d2c but then it lost that new customer acquisition funnel very badly and then look that's kind of where it goes from bad to worse they spend all their cash on e-commerce logistics and software rather than R &D for its footwear, for the technical sports gear, even for those big aspirational marketing campaigns that we associate with Nike so much.

37:13It just really kind of lost its footing from a bunch of different senses. It didn't really know what its customer was anymore, so much so that they actually kind of homogenized their website. Instead of categorizing their website into specific sports, they just did men's, women's, and kids, which is almost retreating from this position of technical excellence which you would have associated with michael for so long you know it's that loss of innovation in an attempt to serve the masses um so that's really like it it seems like the start of a domino this d2 d2c strategy and it really fell short there and then the last thing i'm going to mention in terms of what caused the downfall as well as China.

37:58China. So the region was Nike's fastest growing and highest margin market. And it made up, at its peak, it made up 20 % of total revenue. In the last two years, it's seen eight consecutive quarters of falling revenue. So there was macro pressure in the country. People were just struggling a bit more with affordability. And then there's this thing called, I'm going to butch this pronunciation, pronunciation it's it's called guo chow which was this consumer trend where chinese uh customers basically started favoring homegrown grants instead of it felt like it was in china for one second there so don't worry don't pick yourself up that was beautiful um so they they would opt for chinese companies over foreign companies very much an insular view of consumers and that wrecked sales in the region as well so not only are you bringing down sales in the region But then because they had that premium pricing there, it brought down margins too.

38:57So overall margins for the business. I think in the last five years, profits have been cut in half for the overall company. So you've got margins getting cut from about 14, 15 % down to 8 % plus falling revenue. So it's kind of, it's not a death spiral by any means, but you know, it's the early sign. That is a two-pronged factor going up. It's the two-pronged factor going down.

39:22Emmet:Oh, yeah. Plus now I think they're going, they run the risk of being seen as the brand your dad wears, you know, because of the things that you've just described. And we have Hoka and On and heaven knows what other brands that are new, fresh, crispy. But Nike is, well, Michael Jordan, he wasn't even, you know, he wasn't even alive when I was born. or sorry the other way around i wasn't even alive when he was at his peak game so the kind of iconology that's part of the uh nike story from my perspective feels far less relevant than it is than it was then and then when you look at these other brands that have a connection with roger federer or someone else you're kind of like okay it's a little more relevant now yeah and it's true and like it all feeds into this like it's what Nike moved away from too and so they brought in as a new CEO at the end of 2024 this guy Elliot Hill who it's actually a great story he started at the company as an intern in 1988 wow his job is exactly what you said is to breathe life back into the brand and go back to what it does best and go back to that aspirational brand that it used to be now obviously that's a tall task right now but there are green shoots like it's moving away from digital ads into more narrative campaigns like it was sponsored i think it sponsored a quarter of all world cup teams and i don't know if you remember but it came out just around the world cup it was written back to its classic ad campaigns as well so do you remember uh people now will be listening this is this is terrible podcasting but it's called the rip the script campaign um but it looked like an old school Nike advert it had uh everyone was running towards the goal like it had Haaland and Ronaldo oh yes I remember this one yeah yeah yeah and that that really went did the rounds yeah and made an impact and I we were talking about it like it was a throwback to the old campaigns like the Brazilian team playing in the airport uh the joe guvino ads or the favorite at least for my generation is the the games in the cage uh out on the boat uh which is one of the famous iconic nike ads and this harken back to that and it was interesting to see it's like okay this is a clear shift in direction this is what nike used to nail and now they're trying to recreate it and i i think it was an effective campaign for sure so that is promising now obviously there's way more than just ad campaigns to go for nike like you got to breathe life back into the chinese market that's going to entail tailoring specific products you have to overcome this wow chow issue which is a lot easier said than done you know you got to recapture the high-end market there and re-establish its premium pricing which is going to be tough to do we'll see he's already walking back the d2c strategy so he's reintroducing into the big box retailers um trying to undo the damage there from donahue and then he's restructuring as well around sports he's trying to become less homogenized so that terrible thing of going in and seeing women men's and kids you'll go in and you will see basketball soccer uh tennis whatever else rock climbing like as in you're going in and you're trying to solve problems for not only the everyday athlete but the elite elite athlete as well rather than focus on on being a fashionable streetwear brand anymore so that's where it is it's a serious ask to do like as in i think uh uh elliot elliot hill has come in and the stock has still lost 50 since he's been there like he's in a pressure-packed position now obviously he can go and blame a lot of the issues on what's come before him and like is in his turnaround efforts but he's got a huge thing to do before you can realistically say the stock is making inroads to this turnaround and i think the chinese market is huge for that that's one i would target but for our argument's sake now i think it comes down to numbers and like i always mentioned the pendulum of stock movements in general they will always swing too far in one direction and swing too far the other direction like in 2021 was obviously too far in one direction i think it was trading at something nuts like 35 40 times earnings but we're back down here now and it's at 17 much less than the market not multiple i think it's dividend yield is at like four and a half percent or something crazy right now you don't need a lot to go right for it to see some sort of bounce back now i'm not saying it's going to be a complete overall of the company and the strategy and everything else but i wouldn't be surprised to see it lift up pretty easily from these uh from these levels and i mean the argument is is the brand too far gone you were talking about existential issues with uh mike stock there and and the argument people are making of like is that brand dead and that would be viewed very differently depending on your generation i think you know what i mean me and you would say no way mike has such strong positioning michael jordan ronaldo blah blah blah we remember all those ads out in the boat in the cage the brasilian players joe menito like that's such iconography for us but that's way behind you know the current generation yeah so it is interesting like how do you recapture that or can you recapture that like if any if any company can do it i would say it would be nike but that's from my view that's from me being somewhat of an old fogey and i guess it all comes down to showing just how difficult investing in fashion is because Oh, it's just perpetually hard.

45:06You're either on trend or you're not, like.

45:09Emmet:Yeah. Decker's Outdoor, the maker of Ugg boots, they were the hottest thing. Well, they're Hoka as well. They are Hoka. So my point is that when the story was Ugg boots, at the time, I was an investor, and everyone of a type was buying Ugg boots. They were everywhere to be seen. Nobody felt silly wearing them, I might add. I wouldn't have worn them, but nobody felt silly. They were wearing them out and about. and then they ugg slippers and all the rest but then it was very evident that this was a high quality product that had a finite fashion window you know um but then they rolled over went quiet and then as you said they are hoka and if you were to take that and just well nike has the resources to reinvent whatever reinvention means it might might end up being a new brand that's more relevant to young people that is kind of has role models who are relevant to younger buyers but I would say Nike let me start by asking do you think Nike is attractive right now or do you think more pain is to come?

46:21Emmet:I think When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for indeed sponsored jobs it's tough ask because of the level of turnaround needed i think we could see another couple of struggling quarters but i do think from these levels that there's a definitely a profitable trade in it um it my my only thing is that that argument sounds quite like catching a falling knife.

47:20Yeah, it's true. In other words, wasn't it? Oh yeah.

47:24Emmet:Like I'm looking at its chart right here in front of me and for people who love me describing a chart, it just looks like the silhouette of Everest. But the right hand side of the chart, the bit that indicates now today, is way lower than the leftmost part of the chart. It's a 10-year chart. So with the 10-year picture, it's at its easily lowest point. But if the trend is your friend, that ain't turned around yet that's still falling so if you were to just park all discussion about new ceos strategy changes direct to consumer this that the other like the trend is your friend and heat is going out of that air is leaving that tire as we look at it right now when i look at um a coupang i was trying to remember who did i talk about when you look at coupang um it's a different story you can see where the air fell out of tar it's kind of hit a little bit of a plateau so um so there if you're put the two businesses beside each other with two very simple metric size nike is more or less double the size of coupang by market cap so coupang's market capitalization total number of shares multiplied by the share price indicating approximately how much you'd pay for the business if you want to buy the market cap of coupang is about 27 billion and the market cap of nike is about 54 billion so by market cap nike is twice the size but as discussed coupang is not profitable it lost a lot of money and nike is profitable evident by the fact that it has a p e ratio price earnings rates giving away money in the form of uh you said it's paying dividends and it also has a p ratio it's eps it's earnings for sure it's paying it two bucks and ten cent off a share that currently costs 36 dollars so there are two businesses as different as chalk and cheese um my question to you mike is how would you split ten thousand dollars across them today with a five-year holding period in mind yeah i think there's a great investment case for both i think i might be a bit too close to nike as like a user and a consumer to just fall into the assumption that oh sure surely it'll bounce back like it's nike it's it's it's uh stalwart it would be grand it'd be grand yeah um so maybe i don't have as an objective view as i would on couping i i think the case for a quick bounce back is stronger with couping yeah i'm drawing a lot of similarities to the crowd strike um this crowd strike outage and the fallout just in a more prolonged uh prolonged sense and i think there's definitely an overreaction from korean regulators to it which look is going to be a turn on its side but it's not it's not going to be the one to uproot everything either so if i was to go the 10 grand route i think i might do seven three in favor of coupang um i i don't think you're going too far wrong if you did have 10 grand to split it between them in any way you see fit to be honest i i think i said i think about 20 times in the last 30 seconds um and i'm not thinking i'm talking but yeah i just i feel like like is not gonna keep falling like it just it feels like it can't but maybe that's an emotive argument um so yeah i think i would go 7-3 coupang final answer okay um whether you're standing in Portland, wherever, whichever, Nike was born in Portland in Oregon.

51:22Emmet:Oregon. Yeah, Portland. I think it was Portland. Or whether you're standing in their hometown or go down to Auckland in New Zealand, every developed city, town, everyone who lives in civilization knows the brand Nike, where they have it on their sliding scale of coolness varies. so to buy that type of recognition is nigh on impossible you can't go out and just buy recognition they have spent their entire business life becoming synonymous with sport and i do agree with your with your thought process on that they've um they were hit by a double-pronged perfect storm they have someone who's been with the business since they were told to go photocopy that manual in 1988 now running the show who clearly can see the problem it's not easy to fix but it is not as complex as some other businesses they like it takes someone to go in and go right we got to recool the brand get it back on the shelves improve the quality they feel like doable things and hope that the strength of that brand will lift it again coupang is funny because there's a good chance I'll go through my life and never experience it um never even well I do know what their logo looks like because I've studied the business but most people from Portland down to what did I say Auckland will never interact with couping or have a picture in their mind of what it stands for its logo and its brand values but in saying that I'm quite the fan of couping because it is conquering areas that haven't been as well dealt with by American joints.

53:06Emmet:American giant, the biggest and most beautiful brands of the world have for the most part, or certainly in large part, come out of America, whether your favorite band is Apple or Chipotle, you name it, like they are the brands. But I do think Coupang is doing something that Amazon, like to be that Amazon of an asian nation is pretty uh is pretty impressive so i'm gonna go with the exact same split as you 70 30 in favor of in favor of coupang not because you let me that's the number i had in my head by the time we started this piece so i think we'd both put seven grand into the asian uh i should say south korean uh amazon and three grand into the maker of what were once at least great sneakers good stuff okay that was an interesting convo i think so and uh alas as i said at the top of the show we're gonna have to skip next week uh ordinarily we'd try and record two shows this week but sure we have to pack mike that bag won't pack itself um plus all the other things we have to do so alas we'll see you in two weeks folks um have a wonderful middle of september and we'll see you at the tail end of the month.

54:21Okay, Amesh, thank you for joining me and thank you all for listening in. We won't talk to you next week. We'll talk to you next week.

54:49Emmet:menu has returned to Sweetgreen featuring fall's best dressed. Make your move. Order on the Sweetgreen app. She's the week after.