Bear of the Day: Farfetch (FTCH)
Farfetch Limited (FTCH) is in the right area of retail, luxury, as the global economy reopens after COVID. But it's currently a Zacks Rank #5 (Strong Sell) because the 2021 estimates have been revised lower.
Farfetch operates the Farfetch Marketplace in over 190 countries with over 1300 sellers offering over 3500 of the world's top luxury brands.
It offers enterprise solutions to clients in the Luxury New Retail initiative. The Luxury New Retail initiative also encompasses Farfetch Platform Solutions, which services enterprise clients with e-commerce and technology capabilities, and innovations such as Store of the Future, its connected retail solution.
Farfetch’s additional businesses include Browns and Stadium Goods, which offer luxury products to consumers, and New Guards Group, a platform for the development of global fashion brands.
Big Gains in 2020 During the COVID Pandemic
For online marketplaces, 2020 was a year they will not forget.
In 2020, Farfetch saw revenue jump 64% year-over-year to $1.7 billion.
Gross Merchandise Value ("GMV"), a key metric for marketplace businesses, rose 49% year-over-year to $3 billion.
In 2020, Farfetch signed a new seller, Russian luxury group Bosco di Ciliegi, which owns over 40+ mono-brand and four department stores, including historic department store Gum.
Watches and Jewelry were hot categories, growing nearly 3 times as fast as the Farfetch Marketplace.
2021 Includes a Push Into China
In February 2021, Farfetch did a soft launch on China's Tmall Luxury Pavilion storefront.
It rolled out the full launch on Mar 1.
Over 90% of the 3500+ brands had not previously been available on Tmall. It's a big opportunity for those sellers to access the Chinese luxury consumer simply by being integrated on Farfetch.
Luxury retail is a nearly $400 billion business.
2021 revenue is expected to jump another 36.7% to $2.2 billion with another 28.5% growth in 2022 to $2.85 billion.
Why Is Farfetch a Zacks Rank #5 (Strong Sell)?
If business is so strong, why is Farfetch a Zacks Strong Sell?
Earnings are expected to soar by 83% in 2021 to a loss of $1.66 from a loss of $9.75 in 2020.
However, it's a Zacks Rank #5 (Strong Sell) because 5 estimates have been lowered for the year in the last 60 days.
Analysts had expected a loss of $1.40 just 2 months ago. But now, they're looking for a loss of $1.66.
That agreement among the analysts, and with all of them cutting, was enough to drop the Rank.
But, remember, the Zacks Rank is a short-term recommendation of just 1 to 3 months.
It can change daily, depending on changes to the analyst earnings revisions.
Shares Off Their Highs
Farfetch was considered to be one of the pandemic "winners" and shares soared over 600%.
But in recent months, traders have grown skeptical about the continued growth of the online marketplace companies and the shares have weakened.
Farfetch is down 18.9% year-to-date.
Is this a buying opportunity for long-term investors?
Investors interested in the marketplace companies, such as Etsy (ETSY) and MercadoLibre (MELI), should keep Farfetch on their short list to buy on further weakness and a turnaround in the earnings estimates.
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