Shares of online luxury marketplace Farfetch (NYSE: FTCH) fell 31.9% in the morning session after the company reported second quarter results, which missed Wall Street's expectations for key metrics, including gross merchandise value (GMV), active customers, revenue, and adjusted EBITDA. Notably, revenue missed by a significant margin and growth also slowed.
Looking ahead, the company lowered its full year GMV guidance meaningfully and also cut adjusted EBITDA guidance for the same period. During the earnings call, management highlighted macro challenges, explaining, "The reality is that the recovery has not been as robust as we had expected when we reported our Q1 results. And as a consequence, we have also reduced demand generation investment in this region. Like in the U.S., we believe this is not Farfetch specific as other luxury brands have similarly indicated China is not growing as quickly as previously expected after its reopening in December." Overall, the results were quite bad, with little to no major positives.
Following the disappointing results, Wall Street analysts downgraded Farfetch's stock. KeyBanc analyst, Noah Zatzkin, lowered the stock's rating from Overweight (Buy) to Sector Weight (Hold), citing "a less clear path to profitability." Similarly, JP Morgan analyst, Doug Anmuth, lowered the stock's rating from Overweight (Buy) to Neutral (Hold) and slashed the price target from $15 to $6.
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What is the market telling us:
Farfetch's shares are very volatile and over the last year have had 77 moves greater than 5%. But moves this big are very rare even for Farfetch and that is indicating to us that this news had a significant impact on the market's perception of the business.
The previous big move was three months ago, when the stock gained 12.4% on the news that the company reported first-quarter results that beat analysts' expectations for revenue and earnings per share. Gross merchandise value (GMV) also beat by nearly 4%. Additionally, GMV guidance for the full year was nearly 3% ahead of Consensus. While adjusted EBITDA in the quarter was relatively in line, full year guidance was ahead.
Overall, the quarter's results seemed quite positive and shareholders can feel optimistic, especially after last quarter showed a worrisome year on year decline in revenue but this quarter broke that trend, showing positive growth. Management capped the solid quarter with comments about a commitment to "a return to profitability and positive free cash flow."
Farfetch is down 33.7% since the beginning of the year, and at $2.93 per share it is trading 75.7% below its 52-week high of $12.03 from August 2022. Investors who bought $1,000 worth of Farfetch's shares at the IPO in September 2018 would now be looking at an investment worth $102.81.
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