Shares of Farfetch (FTCH -5.10%) declined 12.2% last month, according to data provided by S&P Global Market Intelligence. The online luxury goods marketplace delivered third-quarter earnings that fell short of expectations.
While the company is making strides to gain market share in the $300 billion luxury goods industry, consumers began to shift spending away from luxury goods last quarter, which could pressure growth in the near term.
On the surface, the results were not bad at all. Total gross merchandise volume (GMV) increased 28% year over year to over $1 billion, which was primarily driven by digital GMV growth of 97% year over year.
One drawback to the investment case is that Farfetch's business is not generating positive cash flow. Cash from operations was negative $409 million through the first three quarters of 2021 compared to negative $84 million last year.
The stock price climbed 516% in 2020, as more consumers accelerated their online shopping with stores closed. However, growth has decelerated this year, but the silver lining in the earnings report is that Farfetch is growing GMV much faster than the luxury goods industry overall.
The easing of travel restrictions might continue to present a headwind for luxury-goods spending in the near term. But the investment thesis around Farfetch's ability to be the go-to e-commerce platform for luxury goods appears to be intact.
Looking ahead to 2022, Farfetch is pursuing a few initiatives that could drive growth, including its beauty launch and expansion of its media solutions and advertising business, which posted record results in the last quarter.
Farfetch also confirmed last month that it's in discussions with Richemont (CFRUY -0.65%) about a potential partnership that might include allowing Farfetch's platform solutions to power Richemont's Maisons and YOOX Net-a-porter online brands. Management believes the blending of offline and online modes of shopping is going to revolutionize the industry, and its platform-solutions business could unlock significant growth potential for Farfech.