What happened

Shares of Farfetch (NYSE:FTCH) rose 16.8% in December, according to data provided by S&P Global Market Intelligence, on a rally that really began in November, after it was reported that Alibaba Group Holding (NYSE:BABA) was considering investing $300 million in the online luxury platform.

It was subsequently confirmed the Chinese e-commerce giant would be investing in Farfetch, but would be doing so with luxury goods company Richemont (OTC:CFRUY), and that the total amount would actually be over $1.1 billion. 

The three companies will form a joint venture called Farfetch China. 

Woman sitting with numerous colorful purses

Image source: Getty Images.

So what

This represents a massive opportunity for Farfetch. Chinese consumers account for one-third of luxury goods sales globally, and they're expected to represent half of the market by 2025.

Farfetch is not a retailer itself, but rather provides a marketplace for hundreds of luxury retailers and brands to connect with consumers. In that way, it is more like eBay, where third-party sellers go to hawk their wares, than Amazon, which sells goods, though it does also offer a platform and storefronts for retailers.

FTCH Chart

FTCH data by YCharts

Now what

Farfetch is still a loss-generating company and through the first nine months of 2020 has recorded over $1 billion in cumulative net losses.

The investments by Alibaba and Richemont, plus the joint venture, should help the luxury goods platform continue with its expansion while providing an infusion of cash to keep it moving forward. 

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