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Why Farfetch Stock Slid Today

By Jeremy Bowman – Jul 10, 2020 at 5:15PM

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Shares of the online fashion marketplace slipped as the market's mood shifted.

What happened

Shares of Farfetch (FTCH -3.46%) pulled back Friday from their recent rally as investors reacted to positive news on the COVID-19 treatment front by selling "coronavirus stocks" like the e-commerce luxury fashion seller in favor of recovery plays.

As a result, Farfetch closed the day down by 4.5%. The Dow Jones Industrial Average rose 1.4%, outperforming the Nasdaq, which gained 0.7%, reflecting investors' bias toward cyclical stocks over tech names.

A woman in a dress poses against a pink background

Image source: Getty Images.

So what

Drugmaker Gilead reported Friday on a study that showed its experimental antiviral remdesivir lowered the risk of death from COVID-19 by 62%. Past studies had found that taking remdesivir shortened coronavirus patients' recovery time, but this was the first to show a significant improvement in the mortality rate.

Wall Street responded to the news by betting on a faster economic recovery, bidding up hard-hit stocks like cruise lines, and selling those like Farfetch, the e-commerce stock that's still up by more than 100% this year even after this pullback. Farfetch shares had soared in recent weeks, up nearly 50% over the last month after a series of analyst upgrades, including one Thursday.

Now what

The online fashion marketplace posted strong results in the first quarter with revenue rising 90% to $331 million, showing it wasn't hindered by the beginning of the pandemic. However, the company did not provide guidance for the second quarter due to the uncertainty around COVID-19, though it maintained its target of adjusted EBITDA profitability next year.

As an e-commerce platform, Farfetch clearly has an advantage over its brick-and-mortar peers right now, but luxury fashion is likely to come under pressure with the global economy in recession. Investors Friday seemed to be saying that after its recent rally, the stock was due for a breather.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool recommends Farfetch Limited. The Motley Fool has a disclosure policy.

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