TMM Stock To Watch: Farfetch

Updated: July 27, 2021

TMM’s Stock To Watch is a series where we highlight stocks getting a lot of internet buzz. We talk about the companies behind the stock — covering the good, the bad, and the ugly — and offer up analyst projections and fun facts that are perfect for slipping into conversation so you can impress people with how smart you are.

We’re kicking the series off with luxury e-commerce giant Farfetch. Yeah, we know, it has a funny name, but this company is making major waves that could translate into major gains for your portfolio.

Farfetch At A Glance

What It Does: It’s a luxury e-commerce retailer that doesn’t hold inventory, but rather acts as a platform for boutiques around the world to sell their goods around the world.
Year It Was Founded: 2007
Based In: London
Stock Price (As Of July 22, 2021): $47.46

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The 411 On Farfetch

Launched in 2008 by Jose Neves, this British-Portuguese luxury online retailer started out as a place for independent boutiques with no online presence to sell their products in the digital space without having to build and manage their own e-commerce sites. Now, it’s become a prime e-commerce hub for top designers, brands, and boutiques, like Gucci, Burberry, Balenciaga, Alexander McQueen, Saint Laurent — the list goes on and on.

When it comes to how fashion is being bought and sold, Farfetch is a game-changer. It’s basically a fashion magazine (think Vogue) and a high-end online department store (think Bergdorf Goodman) wrapped into one, creating a one-of-a-kind shopping experience for customers. It features content from shopping guides to editorial shots of designer collections.

The inventory available on Farfetch is extensive. You can find iconic bags like rare pre-loved Hermès bags, the Bottega Veneta mini Jodie clutch bag Hailey Bieber can’t stop wearing, all the Amina Muaddi shoes influencers can’t seem to take off their feet — it’s endless.

It’s not just hyper luxury, for frugal shoppers there is an outlet where customers can get items at discount — up to 60% off. And for anyone who wants to trade in their old designer clothes and accessories for new ones, Farfetch has a secondary market called Secondlife for selling used products in exchange for store credit. It even has a repair service called Farfetch Fix where customers can have their designer goodies restored to their former glory.

OK, but enough about what you can buy, there’s a lot of retailers out there selling outstanding stuff, what really makes the online retailer stand out from its competitors like MatchesFashion and Net-A-Porter, is its retail model. Farfetch doesn’t rely on owning any of the products it sells. Instead, it uses technology to facilitate digital storefronts for various fashion brands, designers, and boutiques in one location, taking a percentage of sales. It offers same-day and next-day shipping (in select locations), handles returns and customer service on behalf of sellers, offers inventory management capabilities and other e-commerce services for sellers to choose from as needed through its Farfetch Platform Solutions.

Started From The Bottom Now They’re Here

Farfetch went public in September 2018, raising $885 million. Some of its early investors include Vitruvian Partners, Advent Venture Partners, and Felix Capital. Other later major investors include Condé Nast, e.ventures, and DST Global.

As of December 2020, the retailer reports it has three million active consumers spread across 190 countries and hosts more than 1,300 luxury sellers. In 2020, the company had its first profitable year and saw its revenue grow by 64% from 2019. In the first quarter of 2021, Farfetch brought in $495.1 million in revenue, higher than what many analysts had predicted.

Farfetch now owns Browns, an iconic British fashion and luxury goods boutique, Stadium Goods, a retailer for premiere sneakers and streetwear, and the New Guards Group, an Italian fashion production and distribution holding company, which also happens to be the parent organization of the designer label Off-White. Last year, Farfetch entered into a $1.15 billion partnership with Switzerland-based luxury good holding company Richemont (which owns Net-A-Porter) and Chinese tech company Alibaba.

Why is this a big deal? Both companies are titans in the fashion industry, but the Alibaba partnership will significantly expand Farfetch’s reach outside of the U.S. and Europe and into the all-important Chinese market. This partnership also gives smaller luxury brands access to Chinese markets, which is notoriously hard to get into with the country’s strict foreign exchange policies. After the U.S., China has the second strongest economy (second highest GDP) and a population of serious luxury shoppers. Remember when Hermès hauled in $2.7 million in one store in one day in China after re-opening following Covid lockdowns last year? Yeah, Farfetch, and the merchants who sell on its platform, stand to make a killing from the Chinese market, a market not every luxury e-commerce brand has been able to enter.

What The Analysts Are Saying

As of July 2021…

  • The Motley Fool has flagged the stock as one of two with massive growth potential for 2021.
  • CNN Business polled 16 investment analysts who recommend buying stock in Farfetch.
  • Marketwatch has rated Farfetch’s stock as overweight, meaning its analysts believe the stock’s price should perform better in the future.
  • Nasdaq, based on the recommendations from JP Morgan Securities, Keybanc Capital Market, Morgan Stanley, and Oppenheimer Holdings, has marked Farfetch as a strong buy.
  • Wall Street Zen polled 4 analysts all of whom have either recommended buying or holding onto Farfetch stock.
  • Wall Street Journal polled analysts, with 12 recommending buying, and 3 recommending holding, and only one recommending selling.

Dinner Party Chatter

  • Animal rights organization PETA purchased shares in the company back in 2018 when Farfetch went public. These shares would allow the organization to attend Farfetch’s annual shareholder meeting, at which PETA hoped to be able to exert influence and dissuade the retailer from selling products with real animal skin or fur.
  • Farfetch sales soared during Covid lockdowns in 2020 — so much for people not shopping. The company saw the total value of products sold on its platforms surge by 48 percent and it brought in 500,000 new customers.
  • It took Farfetch 12 years to become profitable. However, this timeline to profitability isn’t that uncommon for tech startups looking to grab market share.

TMM’s Performance Review

Farfetch’s revenue has increased with each passing year. It’s continually forging strategic partnerships with big-name fashion and technology companies, and it has garnered a loyal customer base. By not actually holding inventory, the company is incredibly nimble. And by extending its reach into China, Farfetch is well set up to capture luxury shoppers across the globe.

While analysts have been critical of Farfetch in the past for its high customer acquisition costs and expensive acquisitions (like paying $675 million for New Guards in 2019 which caused the stock to drop by 40%), most have a much rosier outlook on the company now, particularly watching the company’s performance during the Covid-mandated lockdowns.

So the next time you’re thing about buying another Prada bag or Jimmy Choo shoes (I know, first-world problems), consider buying stock in Farfetch instead.

Feature Graphic: The Money Manual