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Why Farfetch Stock Went on Sale Friday

By Danny Vena – Nov 19, 2021 at 5:34PM

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Mixed results and reduced guidance sent the online luxury retailer into the bargain bin.

What happened

Shares of Farfetch Limited (FTCH 8.94%) cratered early on Friday, and while they clawed back some of their losses, they never really recovered. The stock plunged as much as 19.7% in early trading but eventually ended the day down 13.9%.

The catalyst that sent the online luxury goods retailer lower was mixed third-quarter financial results that highlighted weaker sales and ongoing headwinds.

So what

Farfetch reported revenue of $582.63 million, up 33% year over year, driven by gross merchandise value (GMV) of $1.02 billion, up 28%. This resulted in an adjusted loss per share of $0.14.

Couple lying on floor at home shopping online with credit card.

Image source: Getty Images.

To give those numbers context, analysts' consensus estimates were calling for revenue of $591.3 million and an adjusted loss per share of $0.24. 

Farfetch preferred to focus on the upside, saying that over a combined two-year period, GMV from its digital platform accelerated from 89% in the second quarter to 97% in the third quarter. On the earnings conference call, CEO Jose Neves said, "No at-scale luxury fashion company, including e-tailers, has reported such fast growth."

That cuts both ways, however, as the tremendous growth it generated during the third quarter of last year made for particularly difficult comps. As pandemic restrictions have wound down this year, consumers have been spending more time at brick-and-mortar stores, and less time in front of a keyboard, which ultimately dented Farfetch's results.

Now what

Perhaps more troubling to investors was the fact that Farfetch lowered its full-year forecast from the outlook provided just three months ago. The company was previously targeting GMV growth in a range of 35% to 40% year over year, but trimmed its guidance to just 33%. 

The company cited Apple's recent privacy moves (requiring users to opt-in to ad-tracking) as increasing "demand generation costs," which took a greater toll on the bottom line. Farfetch also pointed to a delayed start to the crucial fall/winter shopping season, exacerbated by declining search activity for luxury goods. 

E-commerce is undergoing something of a reset after the explosive growth that transpired during the pandemic. Under normal circumstances, Farfetch's growth would have been viewed as solid, but seen through the lens of last year's impressive growth, investors were less than impressed.

Danny Vena owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Farfetch Limited. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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