Farfetch (NYSE:FTCH) Misses Q1 Sales Targets

Jabin Bastian /
2022/05/26 4:47 pm EDT

Online luxury marketplace Farfetch (NYSE: FTCH) fell short of analyst expectations in Q1 FY2022 quarter, with revenue up 6.12% year on year to $514.8 million. Farfetch made a GAAP profit of $728.7 million, improving on its profit of $516.6 million, in the same quarter last year.

Is now the time to buy Farfetch? Access our full analysis of the earnings results here, it's free.

Farfetch (FTCH) Q1 FY2022 Highlights:

  • Revenue: $514.8 million (8.11% miss)
  • EPS (non-GAAP): -$0.24 vs analyst expectations of -$0.21 (11.9% miss)
  • Free cash flow was negative $341.6 million, down from positive free cash flow of $119.4 million in previous quarter
  • Gross Margin (GAAP): 155%, up from 45.5% same quarter last year
  • Trailing 12 Months Active Consumers: 3.82 million, up 550 thousand year on year

José Neves, Farfetch Founder, Chairman and CEO, said: "Our core business remains very strong, in spite of the macro events in China and ceasing operations in Russia, which impacted our performance and outlook. We are galvanized by the opportunity to focus our efforts in 2022 to further rationalize our business, aligning our fixed cost profile with lower near-term growth, which I believe will enable us to exit 2022 from a position of strength. Outside these external factors, we saw strong marketplace growth in the Americas and the Middle East, in first quarter 2022, our customer and luxury brand relations are going from strength to strength, and we continue to make progress towards our mission of building the global platform for luxury."

Inspired by the idea of allowing anyone to buy clothes from landmark boutiques of cities like Paris or Milan without having to leave their couch, Farfetch (NYSE: FTCH) is a global marketplace for luxury fashion, connecting boutiques, brands and consumers.

Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission paying sellers, generating flywheel scale effects which feed back into further customer acquisition.

Sales Growth

Farfetch's revenue growth over the last three years has been exceptional, averaging 54.8% annually. 

Farfetch Total Revenue

This quarter, Farfetch reported an mediocre 6.12% year on year revenue growth, and this result fell short of what analysts were expecting.

Ahead of the earnings results the analysts covering the company were estimating sales to grow 22.5% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Usage Growth

As a online marketplace, Farfetch generates revenue growth both by growing the number of buyers using the platform and how much each of those buyers spends.

Over the last two years the number of Farfetch's active buyers, a key usage metric for the company, grew 36.2% annually to 3.82 million users. This is among the fastest growth of any consumer internet company, indicating that users are excited about the offering.

Farfetch Trailing 12 Months Active Consumers

In Q1 the company added 550 thousand active buyers, translating to a 16.8% growth year on year.

Key Takeaways from Farfetch's Q1 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Farfetch’s balance sheet, but we note that with a market capitalization of $2.7 billion and more than $1.03 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

It was great to see that Farfetch’s user base is growing. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that Farfetch missed analysts' revenue expectations and the revenue growth was quite weak. Overall, this quarter's results could have been better. The company is down 2.86% on the results and currently trades at $7.46 per share.

Farfetch may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.