Is Farfetch Stock a Buy After Its 50% Rally?
2018 was a wild year for Farfetch (NYSE: FTCH). The London-based luxury e-tailer went public last September at $20 per share, rallied above $30, then plunged to the high teens on concerns about softer demand for luxury goods.
However, Farfetch has rebounded over 50% so far this year as it reported strong sales growth, acquired both JD.com's (NASDAQ: JD) Toplife luxury platform and footwear and streetwear marketplace Stadium Goods, and signed an e-commerce deal with department store chain Harrods. Could those tailwinds lift Farfetch's stock even higher?
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How fast is Farfetch growing?
Farfetch's business-to-consumer marketplace lets customers in 190 countries buy luxury goods from more than 1,000 boutiques and brands in over 50 countries. It provides digital storefronts along with inventory management, logistics, and analytics tools to its merchants.
Most of Farfetch's revenue comes from a 25%-33% commission fee per sale for its boutique customers. It also charges fulfillment fees of about 8%. A smaller percentage of Farfetch's revenue comes from its ownership of Browns, a British luxury-goods boutique that operates two brick-and-mortar stores in London.
Farfetch's growth can be measured with its gross merchandise volume (GMV), or the value of all goods sold across its platforms; its number of active customers (who made at least one purchase over the past 12 months); its number of orders; its average order value (AOV); its adjusted revenue (which excludes its fulfillment fees); and its total revenue. Here's how much those metrics grew in 2018:
Number of orders
The only soft spot is its AOV, which fell 5% annually to $637.30 during the fourth quarter and weighed down its annual average. Farfetch attributed that drop to currency headwinds, lower fulfillment revenue per order (due to a higher mix of domestic orders and cheaper products), price cuts, and higher loyalty incentives. According to an SEC filing, Farfetch's fulfillment revenue comes from "shipping and customs clearing services that we provide to our consumers in relation to fulfilling transactions on our platform…"
However, Farfetch's AOV remains much higher than the worldwide AOV of $114 for e-commerce platforms last year, according to seven different studies compiled by Growcode, since it only sells luxury brands. Its growth in GMV, orders, and active customers all suggest that it still has plenty of room to run. For 2019, the company expects its GMV to rise more than 40% and for its core platform services revenue (which excludes its fulfillment and brick-and-mortar revenue) to rise 43%-47%.
How profitable is Farfetch?
Farfetch's top-line growth looks solid, but its losses are widening due to higher marketing, fulfillment, and tech expenses.