What happened
Shares of Farfetch Limited (FTCH +0.00%) surged on Monday despite a lack of news on the company's website. However, The Information reports its sources say that Chinese e-commerce giant Alibaba Group Holding (BABA 1.75%) is considering a $300 million investment. This hasn't been confirmed officially but investors don't seem to mind. As of 1 p.m. EST, Farfetch stock was up a whopping 17%. Alibaba stock was unaffected by the news, up just 1%.
So what
Farfetch is a luxury-fashion company with both e-commerce and brick-and-mortar operations. It has customers in over 190 countries, including some business in China. However, the company is reportedly also working on a joint venture with Alibaba in China. To be sure, if it wants to penetrate China further, a partnership with Alibaba makes a lot of sense. Alibaba is targeting over one billion active customers by the end of 2024, making it one of the biggest companies on the planet.
Image source: Getty Images.
Alibaba's interest in Farfetch isn't unique. Consider that in 2017, JD.com, one of China's largest e-commerce companies, invested $397 million in Farfetch. In January 2020, China's Tencent and San Francisco's Dragoneer Investment Group invested $125 million each in the company.
According to The Information, luxury-goods company Richemont is also considering an investment in Farfetch.
Now what
Funds from the previous investments from JD.com, Tencent, and Dragoneer were used for general purposes. The larger benefit came from an heightened business partnership between the companies. For this reason, one would expect increased collaboration between Farfetch, Alibaba, and Richemont in the future. However, it's unclear how this new partnership will affect Farfetch's existing business relationships with JD.com and Tencent in China.
For now, Farfetch shareholders should feel validated. The biggest e-commerce players in China all want a piece of this growth stock, which certainly strengthens a long-term bull thesis.
