Farfetch (NYSE: FTCH) — English online fashion store. The company occupies an interesting niche in the sale of expensive clothing and luxury goods.. But she's profitable, and her business doesn't seem very sustainable.
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What do they earn
Farfetch is an online service for selling fashion and luxury goods.. According to the annual report, The company's revenue is divided into the following segments:
- Services based on the digital platform Farfetch — 61,4%. This is the company's commission from the sale of goods by other sellers on the Farfetch site - 60% segment revenue, plus the proceeds from the sale of goods by the company itself - 40% segment revenue.
- Digital platform (logistics) — 14,73%. These are goods delivery services for those, who sells products on the company's platform. On the digital platform, the gross margin in total is 42,5%.
- Brand platform - 20,71%. Fashion brands under the Farfetch umbrella. Segment gross margin — 51,66% from its proceeds.
- Physical Stores - 3,14%. They sell part of Farfetch products. Segment gross margin — 63,08% from its proceeds.
Revenue by country and region:
- USA - 21,07%.
- United Kingdom — 9,8%.
- Other, unnamed countries - 69,13%.
The company is unprofitable. Profit in 2021 is a failure in the matrix: the company received a one-time large profit due to non-core one-time operations.
Arguments in favor of the company
Maybe, promising. The company occupies a very interesting niche: selling luxury online. Most of these products are sold offline - 77%, but the share of online is growing rapidly: if in 2019 it was 12%, by the end of 2021 23% luxury goods sales accounted for online.
I think, that the coronacrisis will not end and will continue to kill traditional retail - and this will contribute to the influx of buyers and sellers on the Farfetch platform. Probably, revenue and volume of goods traded on its platform will continue to grow, although in that, as for growth rates, there are some doubts.
Inexpensive. The company's shares collapsed under the weight of its senselessness.: with 73 $ February 2021 to 15,04 $. P / The company's S is now 2,92, and its capitalization is 5.73 billion. This may well attract a buyer to the company. The company's operating margin has increased: if in 2020 it was about minus 33%, is now at minus 19,69%.
It can both attract investors into the company's shares, and lead to its purchase by someone bigger. The second option would be the most desirable for the current shareholders of the company..
Earnings per share and investor expectations
| Current | Forecast | |
|---|---|---|
| 1к2021 | −0,22 $ | −0,28 $ |
| 2к2021 | −0,17 $ | −0,33 $ |
| 3к2021 | −0,14 $ | −0,24 $ |
| 4к2021 | −0,03 $ | −0,25 $ |
| 1к2022 | — | −0,24 $ |
What can get in the way
senselessness. The company is unprofitable, and there is no end in sight. Worse than that: the main direction of development of online sales of fashion and luxury falls on the own online stores of large brands or their partnership with large logistics players.
I wouldn't hope, that it will someday start to show profit, so Farfetch's main chance is that someone will buy it. AND, need to say, this is highly speculative.
At the same time, the corona crisis has already entered a stable phase., and everyone is used to it. And that means, that sharp jumps in activity on the company's platform are not expected: Yes, she will grow - but not so cheerfully, how in 2020. And for investors, there is nothing worse than a loss-making startup., whose revenue growth rate becomes somewhat slower than the speed of light.
Resume
Basically, Farfetch would be a good speculative idea, but the strength of its business model is questionable.
