What happened
Shares of Farfetch Limited (FTCH +0.00%) slipped as much as 14% this week, according to data from S&P Global Market Intelligence. The online fashion and luxury marketplace has a lot of exposure to the Chinese economy, which is struggling right now with strict COVID-19 lockdowns across the nation. There was also an announcement about Web3 initiatives by the company, as well as the broad market drop that likely affected shares this week.
As of 11:53 a.m. ET on Friday, shares of Farfetch are down 11.8% since last Friday's close.
So what
China is a huge market for luxury items, so Farfetch has invested heavily in the region. But right now, with COVID-19 lockdowns and a strict zero-case policy, the country is struggling to recover from the pandemic.
In the second quarter of this year, China's economy only grew 0.4% annually, the worst growth since the early days of 2020. With many people locked in their homes in places like Shanghai, spending on luxury items might be falling, or at least investors are predicting that it will.
Plus, with a zero-case policy, it is likely that the country will be battling the disease for a long time with these strict measures. This could have a long-term impact on Farfetch's growth in the region.
There also was an announcement from Farfetch this week about investments solely in decentralized Web3 fashion businesses with its new company accelerator. A year ago, this might have caused the stock to soar, but with the air going out of the Web3 market, investors were probably not happy to know that their money is going to be spent on these investments.
Lastly, the broad market is down this week, likely causing Farfetch's stock to fall as well. As of this writing, the Nasdaq 100 index is down 1.3% this week. For volatile stocks like Farfetch, this can have an impact.
OTC: FTCH
Key Data Points
Now what
With the stock down this week, Farfetch is now down a whopping 80% year to date. At a market cap of $2.5 billion, the stock trades at a price-to-sales ratio of approximately 1. This is cheap for an online marketplace that has strong unit economics. But with the slowdown in China and these announcements of Web3 investments, you can't fault investors for being skittish about the long-term prospects of its shares.
