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Why Farfetch Stock Is Surging Today

By John Rosevear – Aug 14, 2020 at 11:37AM

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Earnings were better than expected, but there's more to the story.

What happened

Shares of online luxury-fashion seller Farfetch (FTCH -4.46%) were trading sharply higher on Friday, after the company reported that its second-quarter loss was narrower than Wall Street had expected. 

As of noon EDT, Farfetch's shares were up about 9.8% from Thursday's closing price.

So what

Farfetch reported its second-quarter results after the market closed on Thursday, and they were stronger than analysts had expected. On an "adjusted" basis, excluding one-time items and stock-based compensation costs, Farfetch lost $0.20 per share on revenue of $364.7 million. 

That was a double beat: Wall Street analysts polled by Thomson Reuters had expected a loss of $0.35 per share on revenue of just under $327 million, on average.

An iPhone with the Farfetch app open, resting on a laptop computer.

Image source: Farfetch Limited.

The deeper numbers were good, too. Farfetch's gross merchandise value (GMV), or the total value of the merchandise sold through its platforms during the quarter, was up 34% from a year ago on its digital platform and up 48% overall, driving a 74% increase in revenue from the second quarter of 2019. Farfetch's adjusted loss before interest, taxes, depreciation, and amortization (adjusted EBITDA) was $25.2 million, an improvement over last year's $37.6 million loss on the same basis.

"These results show we are making excellent progress and driving growth on the platform, expanding unit economics and delivering operating cost leverage," CFO Elliot Jordan said during Farfetch's second-quarter earnings call. "Our goal of achieving adjusted EBITDA profitability across 2021 is another step closer."

Now what

While noting that the ongoing COVID-19 pandemic could affect Farfetch's ability to meet guidance, Jordan said that as of right now, retail-focused investors can expect the following from Farfetch in the third quarter:

  • Digital platform GMV between $588 million and $609 million. (Result in the third quarter of 2019: $420.3 million.)
  • Brand platform GMV between $90 million and $95 million. (Q3 2019: $62.6 million.)
  • An adjusted-EBITDA loss between $20 million and $25 million. (Q3 2019: Loss of $35.6 million.)

John Rosevear 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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