Shares of luxury fashion company Farfetch Limited (FTCH) surged on Friday, up 11% as of 2:30 p.m. EST. Previously the stock went up because of a rumor it was launching a joint venture with Alibaba Group Holding (BABA) and Richemont (CFRUY -0.44%) in China. Yesterday, the rumor was confirmed and details given, sending Farfetch stock up again.
Alibaba is one of the biggest companies in the world, let alone China. The company claims to have 757 million customers, and they will all now have increased exposure to Farfetch's brand. For its part, Farfetch will launch its own channels on e-commerce platforms owned by Alibaba.
Beyond this, Farfetch, Alibaba, and Richemont are launching a joint venture called Farfetch China. Alibaba and Richemont will invest $250 million each, worth 25% of the new company. After three years, they can purchase an additional 24% in Farfetch China, leaving majority ownership with Farfetch Limited.
Beyond their investments in Farfetch China, Alibaba and Richemont will also be investing $300 million each in Farfetch Limited via convertible notes.
This is a big deal for Farfetch. It brings in $1.1 billion in fresh funds and dramatically expands its reach in China. Given Alibaba's expertise in China and e-commerce, Richemont's history in luxury goods, and Farfetch's own appeal, it's hard to see how this joint venture could go wrong. That doesn't necessarily make the stock a buy; more research is needed for that. But if this is a space you're interested in, Farfetch certainly just got a lot more interesting.