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Why Farfetch Limited Stock Was Rising Today

By Jon Quast – Jun 25, 2020 at 11:20AM

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The coronavirus is pushing adoption of its luxury fashion platform, with first-time buyers up big time.

What happened

Shares of fashion company Farfetch Limited (FTCH 1.03%) were rising sharply today in stark contrast to the market's downward trend. As of 10:45 a.m. EDT on Thursday, the stock was up a whopping 17%.

Farfetch was scheduled to make a presentation at a conference later today. In preparation for this event, the company released some surprising numbers for the upcoming second quarter that have shareholders buzzing. 

A businessman draws an upward arrow on a chart displayed on a transparent touchscreen.

Image source: Getty Images.

So what

Farfetch operates a digital marketplace, connecting luxury-fashion brands with consumers. Like all clothing retail, this has been an area somewhat resistant to the e-commerce trend. But because of the COVID-19 pandemic, Farfetch's business is booming like never before.

Gross merchandise volume (GMV) refers to processed sales. Farfetch takes a cut from these sales, which contributes to its revenue. While the company didn't give a revenue update in its Securities and Exchange Commission filing, it said it expects Q2 GMV on its digital platform to be between $605 million and $630 million. That's good for year-over-year growth between 25% and 30%. 

Farfetch provided additional evidence the coronavirus is pushing its adoption: Its app was installed more than twice as often as it was last year, first-time buyers are up, and traffic to its websites and apps has increased 60%.

Now what

Farfetch noted that first-time buyers tend to spend less than repeat buyers. Because of this, the company's average order value actually fell in Q2. This underscores how impressive its GMV growth is: Buyers are spending less, but there are so many new buyers that they more than make up the difference.

That's a good sign for this consumer-discretionary retail platform. The key will be Farfetch's ability to retain its new customers. If it can, then it's reasonable to assume it can reach its goal of adjusted EBITDA profitability by 2021. 

Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends Farfetch Limited. The Motley Fool has a disclosure policy.

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