Shares of Farfetch (FTCH 1.11%) were flying higher today, finishing up 39% after the online luxury fashion company posted fourth-quarter earnings results that showed surprising profit growth and reassured investors of its long-term growth opportunity.
Though revenue actually missed estimates as the top line grew 23% to $666 million, the company made up for it on the bottom line as adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) surged from $10.4 million to $36.1 million as the company made efforts to control markdowns.
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For 2022, management expects revenue growth to accelerate from the fourth quarter, calling for 28% to 32% gross merchandise value growth on its digital platform, where it generates the majority of its revenue and profits. It also expects profitability to improve, calling for adjusted EBITDA margins of 1% to 2% for the year, up from 0.1% in 2021.
The results were welcome news for Farfetch investors who had suffered a loss of more than 75% coming into the report.
Is Farfetch a buy after today's news? There's a lot to like about the company as it's the leader in online luxury fashion, an underpenetrated area, selling products from more than 570 brands, including Chanel, Prada, and Gucci. Alibaba Group Holding and Cartier parent Richemont have both invested the company, and Farfetch also has a business called Farfetch Platform Services, running websites and other online portals for luxury brands, making it something of a Shopify for luxury brands.
In other words, the company has significant potential, and the valuation looks appealing after the slide over the last year. Investors might want to take advantage while the price is still down.
