Is Farfetch Stock A Buy? Amazon (NASDAQ:AMZN) may be an ecommerce giant, but that doesn’t mean it’s perfect. In fact in some niches like clothing, consumers prefer to ditch Amazon for better pastures. This is the environment that allowed Farfetch Ltd (NYSE:FTCH) to thrive.
This British luxury fashion platform sells products from over 700 high-fashion brands and boutiques, reaching markets in Portugal, the U.S., Hong Kong, China, Brazil, Japan, the United Arab Emirates, and more.
Farfetch was founded in 2007 and has been buzzing ever since for its ability to connect independent fashion boutiques with customers. It pulls in around 20 million site views each month and ships to nearly 200 countries.
Although emerging brands are the company’s bread and butter, much of its revenue comes from the sale of brands like Givenchy, Burberry, Saint Laurent, and Bottega Veneta. Investors are now wondering is Farfetch stock a good investment?
Farfetch: A Unicorn That Continues To Gallop
Farfetch is dedicated to designer fashion and serves as a marketplace for both luxury fashion houses and smaller boutiques.
Styles are curated by the staff and include everything from iconic brands like Prada, Adidas YEEZY, Alexander Wang, and Gucci to a wide array of upcoming designers.
This is a great way to associate your brand with other expensive brands, a la Saks Fifth Avenue and YOOX Net-A-Porter (YXOXF). The company was declared a “Unicorn Company” as a start-up valued over $1 billion in March 2015.
Farfetch’s pre-IPO investors include JD.com, IDG Capital partners, Advent Ventures Partners, and Conde Nast International, and it far surpassed a million users before being taken public in September 2018.
Founder and CEO Jose Neves is a Portuguese businessman who became a billionaire upon the IPO launch, due to his stake in the company, which was valued at $20. He cemented his net worth when the company partnered with Harrods, a famed London department store, to use its e-commerce platform.
When the 2020 novel coronavirus pandemic shuttered luxury retailers across the country, Farfetch found itself in the right place at the right time to make a killing.
Of course, it also has PETA as a vocal investor that actively protests any luxury fashion involving the killing of animals for their furs and a slew of competitors.
ASOS Marketplace, Poshmark, Ebay, and Amazon are all looking to expand into this fashionable marketplace that’s estimated to reach nearly $1 billion in net worth by 2024.
Is Farfetch Stock A Buy?
Farfetch stock price dropped in the third quarter of 2019 after it reported financial losses amidst a $675 million acquisition of New Guards Group, which includes luxury brands like Off White and Palm Angels.
In addition, Chief Operating Officer Andrew Robb announced he was stepping down in 2020. This kept the market value (and analyst expectations) low heading into spring 2020, which sent the stock soaring. It’s now comfortably back in the $25-$30 range it leapt to on its first day of trading back in 2018.
Positive earnings results have investors and fashion designers alike hoping Farfetch will be a lifeline during a turbulent holiday sales season While it increases its profit margins.
Municipal lockdowns and government stimulus plans remain in effect through the end of 2020, and the Black Friday/Cyber Monday deals you’re used to may not exist if supply chain issues haven’t been straightened out in time.
Everyone across the retail industry is facing the most uncertain and unstable holiday season yet, as crowds will be unable to flock to brick-and-mortar outlets and malls due to COVID-19 social distancing restrictions.
Although Farfetch has most analysts keeping it at a Buy rating, that doesn’t mean it’s without risk.
Could Farfetch Stock Price Stumble?
Just because Farfetch is doing well doesn’t mean it doesn’t have obstacles – if anything, its increased revenue gained the attention of the competition.
Amazon, which wants to funnel all of retail through its owned websites, is itself rolling out a plan to beat the fledgling company at its own game.
This includes creating a shop-within-a-shop concept to enable boutique brands to better guarantee authenticity. However, fashion houses like Louie Vuitton and others are refusing to play ball with the ecommerce giant.
Farfetch also faces the potential of consumers shying away from luxury brands post-coronavirus. Because its niche is high-priced luxury goods, it could find itself on the wrong side of history should the economy continue to struggle through the 2020s.
However, an economic recovery will likely push sales even higher as long as the company can beat the competition.
Farfetch Vs Poshmark Vs Ebay Vs Amazon
There’s also YNAP to consider. This company is the result of a merger of former rivals Net-a-Porter and Yoox, which both directly competed before teaming up to service this exact market.
However, YNAP still operates on a traditional retail model in which it holds its own inventory. This means it has to pay for the warehousing and distribution, something Amazon does as well. Farfetch, on the other hand, is merely a marketplace to connect consumers with brands, just like eBay and Poshmark.
Of course, Poshmark differentiates itself somewhat as a third-party marketplace, although direct brand interactions are also enabled and encouraged.
The company backed off from a 2019 IPO and gained a 50 percent increase in earnings year-over-year in April 2020 at the height of the pandemic. Should either company start nabbing exclusivity deals, they can be worth a lot of revenue in the coming years.
Is Farfetch Stock A Buy? The Bottom Line
Farfetch is a luxury clothing marketplace that connects fashion houses big and small with consumers. The high-margin industry of high fashion grew through ecommerce during the 2020 coronavirus pandemic, and Farfetch revenues and stock price reflects that change.
It’s still a hot stock heading into the holiday 2020 season, as brands around the world seek to recover from the economic effects of the global shutdowns.
It successfully built a niche Amazon historically failed, but that doesn’t mean Bezos and other competitors aren’t hot on its tail. Should the economy continue hurting, there’s a chance consumer sentiment toward luxury brands shifts. This could make the entire pie smaller and cause the company to seek an exit strategy.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.