Why Farfetch Limited’s share fell 10% in September

What happened

Luxury e-commerce stock Farfetch Limited (NYSE: FTCH) fell 10% in September, according to data from S&P Global Market Intelligence. The shares had gained nearly 500% in 2020, and with a high valuation this year, the price has started to fall. Stocks are now down more than 40% year-to-date as of this writing.

Image source: Getty Images.

So what

There was no big news for Farfetch in September, but many stocks fell amid supply chain and inflation concerns. Add to that Farfetch’s preparation for 2020, and that’s a recipe for a price correction.

Apart from that, the company is showing solid growth. In the second quarter, revenue increased 43% to $ 523 million, and gross cargo volume (GMV) grew 40% year-over-year and more than doubled from the figures for 2019, exceeding $ 1 billion. Gross margin rose 0.3% to 44%, but losses also widened, from $ 87 million in 2020 to $ 436 million in 2021. For the full year, Farfetch’s expects GMV to increase 35% to 40% year over year.

Farfetch has pulled off the delicate feat of creating a luxury online experience, with details like product launches by top designers and virtual test rooms for the perfect fit. Besides its main market, it also sells its e-commerce software to luxury designers for their own branded stores, at the Shopify. These have made it a formidable name in e-commerce with its own niche and strong growth prospects. But its huge losses may worry investors.

It is still in high growth mode, which requires significant expenses, and these are already paying off in sales growth. As the business grows, it has a path to profitability. In addition to developing its domestic market, Farfetch is taking a big step forward in China. He received $ 250 million each from Alibaba Group and the European luxury goods conglomerate Richemont, owner of brands such as Cartier Baume and Mercier, for a joint venture in China.

Now what

Farfetch has a bright future ahead of it as it expands into new markets and develops technology that matches its unique model. It’s still expensive for a company that hasn’t made a profit yet, but in the long run, the stock is likely to rise and its lower price makes it more attractive.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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