Farfetch Ltd: E-Commerce Stock Up Big-Time in 2020 & Could Keep Rising

Farfetch Stock Soars 526% YoY; Not Done Soaring Yet

Luxury e-commerce retailer Farfetch Ltd (NYSE:FTCH) has thrived during the coronavirus pandemic and its related economic shutdowns. FTCH stock has been on fire since the November election, proving that it’s not just a COVID-19 play.

I last wrote about Farfetch on September 9, when it was trading at $26.92. At that time, Farfetch stock had been on a memorable tear, up 210% year-over-year, 160% year-to-date, and 350% since hitting March lows of $5.99.

It has only been about three months since then, but those gains are nothing compared to the ones these days

As of this writing, FTCH stock has soared 526% year-over-year, 475% year-to-date, 920% since its March lows, and 115% since the November election.

Luxury online sales have soared during the pandemic, and that was just the start. Thanks to a number of promising vaccines, it’s the beginning of the end of COVID-19, with the global economy expected to come roaring back in 2021.

This is excellent news for consumer discretionary companies, and it’s even better news for e-commerce companies that cater to the wealthy—which is exactly what Farfetch Ltd does.

An eyewatering 40 million Americans filed for unemployment during the pandemic, but billionaires won big.

Over the seven-month period starting in mid-March, which was a week after President Donald Trump declared a national emergency, America’s 614 billionaires grew their net worth by a stunning $931.0 billion. And thanks to strong stock market gains, thousands of Americans became millionaires. (Source: “Jeff Bezos, Elon Musk Among US Billionaires Getting Richer During Coronavirus pandemic,” USA Today, December 1, 2020.)

Farfetch Ltd has been capitalizing on that increase in wealth and the ongoing growth in online shopping. And there’s no reason to believe it’s going to slow down. If anything, online shopping is still in its infancy. And the luxury e-commerce industry is just getting started.

Chart courtesy of StockCharts.com

FTCH Stock Overview

Farfetch, the world’s No. 1 online luxury fashion platform, sells luxury goods to housebound consumers and online-shopping addicts in the Americas, Europe, the Middle East, Africa, and Asia Pacific. (Source: “Bank of America Consumer & Retail Virtual Conference,” Farfetch Ltd, November 19, 2020.)

Farfetch connects 2.5 million active customers in over 190 countries with more than 1,300 of the world’s top brands, boutiques, and department stores. Some of the more well-known brands that Farfetch sells are “Prada,” “Canada Goose,” “Dsquared2,” “Gucci,” “Versace,” “Alexander McQueen,” and “Burberry.”

The company also owns two Browns retail stores in London, England, one Stadium Goods retail store in New York City, and two Off-White stores in Las Vegas and New York. It also operates approximately 50 New Guards Group franchised retail stores.

Global Partnership with Alibaba Group & Richemont

In early November, Farfetch announced that it had formed a strategic partnership with Alibaba Group Holding Ltd (NYSE:BABA) and Richemont to provide luxury brands with enhanced access to the China market, and to accelerate the digitization of the global luxury industry. (Source: “Farfetch, Alibaba Group and Richemont Form Global Partnership,” Farfetch Ltd, November 11, 2020.)

As part of the global partnership, Alibaba and Richemont will invest $300.0 million each in private convertible notes. The two companies will also invest $250.0 million each in Farfetch China, taking a combined 25% stake in the new joint venture.

With the partnership, Farfetch will launch luxury shopping channels on Alibaba’s platforms “Tmall Luxury Pavilion,” “Luxury Soho,” and “Tmall Global.” The new channels will expand the reach of Farfetch’s global luxury platform to Alibaba’s 757 million consumers.

Record Third-Quarter GMV Results

On November 12, Farfetch announced that its revenue for the third quarter, ended September 30, increased 71% year-over-year to $438.0 million. (Source: “Farfetch Announces Third Quarter 2020 Results,” Farfetch Ltd, November 12, 2020.)

The company’s gross merchandise value (GMV) accelerated 62% to a record $798.0 million, with digital platform GMV up 60% at a record $674.0 million.

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) improved to a loss of $10.3 million, from a loss of $35.6 million in the same prior-year period. Third-quarter adjusted earnings per share improved to a loss of $0.17, from a third-quarter 2019 loss of $0.20.

José Neves, founder, chairman, and CEO, said: “The Farfetch platform continued to accelerate in third quarter 2020, setting another quarterly GMV record and further indicating we are witnessing a paradigm shift in favor of online luxury.”

Elliot Jordan, CFO, added, “The strong underlying financial profile of Farfetch and recent investments by our new strategic partners who form part of Luxury New Retail initiative means we are well placed to support the global luxury industry in navigating the continued growth in online over the coming years.”

Analyst Take

As explained above, luxury e-commerce company Farfetch Ltd has been capitalizing on an underdeveloped industry that’s poised for massive long-term growth.

The company continues to add new brands and stores, and its customer base is at record levels. Moreover, Farfetch’s lucrative partnership with Alibaba and Richemont expands its global footprint and should drive sustained growth and market share for years to come. That all bodes well for Farfetch stock.