It hasn't been a pleasant ride for shareholders since the company's initial public offering in 2018. On top of reporting losses on the bottom line, Farfetch made a deal to acquire New Guards Group for $675 million last year. Investors are concerned that New Guards diversifies the business unnecessarily.
On the bright side, Farfetch is continuing to take market share in the luxury goods industry, as it provides a platform for brands around the world to connect with consumers in a digital economy. Last year's dip could just as easily turn into a gain in 2020.
Farfetch has a massive growth opportunity to help traditional luxury brands connect with consumers online. Less than 10% of luxury sales happen online, so it's not surprising to see Farfetch posting huge growth rates on the top line. Year-to-date sales through the third quarter were up 47% year over year.
However, investments in technology and marketing are eating up the company's profit, which has led to net losses. But that doesn't appear to be investors' most concerning issue with the company.
The stock nosedived after the acquisition of New Guards. One concern is that it muddies Farfetch's reporting, since the company will report its results across two segments: offline transactions in wholesale as a brand platform, and online sales from farfetch.com and brand.com as the company's digital platform.
Wall Street may be unhappy with the New Guards acquisition, but management believes the deal will generate value in the long run. Farfetch will apply its technological expertise and data insights to design and brand development using New Guards platform that features labels like Off-White and Paul Angels, among others.
Investors are having to recalibrate their future growth expectations after the recent deceleration in gross merchandise volume (GMV). In the middle of the year, Farfetch cut its full-year outlook for GMV growth from 41% to a range of 37% to 40%. However, Farfetch is still growing twice as fast as the market, according to luxury goods researcher Bain.
Farfetch could still be a good growth play in the luxury goods market, but investors may need to be patient with this one. It may take a while for investors to readjust their expectations and gain a better understanding of how to value the company with new moving parts like New Guards joining the fold.