Farfetch - New Top Stock

My December top pick is coming early

Nov 16, 2020

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Farfetch (FTCH)

People around the world are gearing up for the holiday shopping season and the vast majority will rely on the internet to make purchases. E-commerce is seeing a big boom from Covid as people avoid crowded malls and shopping centers. Farfetch is going to benefit from this shopping trend for many quarters and years to come.

Farfetch is a London based luxury E-commerce company that supports over 1,000 global brands. They have over 4,000 employees and most are based outside of the U.S. According to data on LinkedIn, they only have around 200 employees in the U.S. so they are focused in Europe, South America, and Asia. Their website and apps operate all over the world in many languages making this brand popular outside the U.S. market.

The Asian markets have an extreme demand for luxury brands and goods and Farfetch is positioned well in this market. In 2017, JD.com invested $397 million in Farfetch to help it expand more in China. This partnership has helped Farfetch expand since 2017 and deliver fantastic revenue growth over the years.

The Acceleration of Online Luxury

“What we are seeing is the acceleration of the secular trend of online adoption in luxury – an industry that is still very underpenetrated. The capabilities developed across the Farfetch platform over the past 13 years in anticipation of the eventual digitization of the luxury industry uniquely position Farfetch to capture this opportunity today. And our recently announced partnership with Alibaba and Richemont further position us to seize the opportunity to bring the luxury industry into the next generation and drive sustained growth and market share for many years to come.” — José Neves, Farfetch Founder, Chairman and CEO

FARFETCH Revenue Growth

2017: $386 million
2018: $602 million (Increase of 55% YoY)
2019: $1.02 billion (Increase of 69% YoY)
2020: Q1 + Q2 = $696 million
Q3 2020: $438 million (Increase of 71% YoY)
2020 FY Estimate: $1.6 billion in revenue

Farfetch has really impressive revenue growth from 2017 to 2020 and they are continuing to grow at fantastic rates. As you can see the company has doubled in size from 2018 to 2020. They are benefiting from multiple trends going on now: people shopping at home & increase in luxury goods spending in Asia. Their expansion into Asia with strategic partnerships with JD.com and others are helping them grow rapidly.

Recent Q3 Numbers

November 12, 2020

Q3 2020 Gross Merchandise Value and Digital Platform GMV growth rates accelerate – up 62% and 60% year-over-year, respectively, to record highs of $798 million and $674 million, respectively
Q3 2020 Revenue increases 71% year-over-year to $438 million
Q3 2020 Gross Profit and Digital Platform Order Contribution up 82% and 98% year-over-year, respectively
Announced global partnership with Alibaba and Richemont to accelerate the digitization of luxury industry; strategic partners to invest total $1.15 billion in Farfetch Limited and new Farfetch China joint venture

New Partnerships

Back in 2017, JD.com invested $397 million into Farfetch to help accelerate the expansion into China. This made JD one of the largest shareholders and a strategic partner to help with growth. Recently, a new investment in Farfetch has been making headlines. Alibaba, Richemont, and Artemis have now invested $1.15 billion into Farfetch to help fuel expansion in Asia.

The partnership is part of the larger shift in the luxury industry away from brick-and-mortar and toward both e-commerce and China. —Farfetch CEO Jose Neves

We are seeing a huge shift around the world as more brick and mortar retailers are closing as consumers opt to purchase online. Farfetch is poised to benefit greatly from this shift and that is why they are getting the $1.15 billion investment. Farfetch sells luxury products from over 3,000 small and independent brands as well as the major luxury brands that most people are familiar with.

Farfetch Stock (FTCH)

Farfetch stock has done extremely well over the last 12 months and shares are up 372% during this period.

Market Cap $14.5 billion
PS Ratio 10.80
80% of analysts have a buy rating on Farfetch

Over the next 12 months, I estimate that Farfetch stock will be in the $60-75 range per share. I have both shares and call options for Farfetch.

SUMMARY

Farfetch is a fast growing e-commerce company with tons of potential to grow even more as they expand around the world. They have proven over the last 3 years that they can grow at rates over 50% YoY which puts them in the high growth category. They have shown that they can increase revenue growth over the last 3 years which is very rare. Farfetch can continue to expand into Asia with their new partnerships with Alibaba and others that will help them expand more quickly. They benefit from the on-going trends around e-commerce and Covid stay at home orders. Consumers are relying more on e-commerce to shop for all goods and that will benefit Farfetch for many more quarters over the next 12-18 months.

About Me

I spent 8 years working in Tech in sales, marketing and growth roles at startups and in large enterprise. I worked on high growth teams selling software to leading companies in North America. Over the years, I became a top performer and went to various offices to train others on how to sell software and grow teams. Now, I’m a full-time investor and independent writer sharing my ideas with others. I’m following my passion for investing that started 13 years ago. Thank you for supporting my work as a writer and I hope you find value in my research, articles and perspective on Tech.

Follow my Twitter: @james_carter89

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Disclosure: Not Financial Advice

I currently have shares and call options for Farfetch (FTCH).

James Carter & SCALE 89 does not provide financial or investment advice. None of my content can be construed as advice. This article and my tweets are for informational purposes only.