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Farfetch Ltd. stock climbed 10% in Friday trading after the luxury technology platform reported revenue that beat expectations and gave a look forward that has analysts forecasting market share gains.
Farfetch FTCH, +9.37% , which operates an e-commerce marketplace for luxury goods, reported a 74% revenue increase versus last year, with the second quarter reaching $365 million. Gross merchandise value was up 48%.
The company got a bump from the 500,000 new customers that came to the site. Farfetch Chief Executive José Neves also talked about the “cultural relevance” of the brands found on the platform, with brands like Rihanna’s Fenty label and a new Gucci collection sold on the e-commerce site.
Farfetch also credited New Guards Group, a brand platform with names that include Off White and Palm Angels, with bolstering quarterly results. Farfetch acquired New Guards in 2019, a move that wasn’t initially well-received by investors.
“In Q2, the number of baskets with both a New Guards item and an item from another brand doubled year-over-year,” Neves said, according to a FactSet transcript of the earnings call. “And when the most recent Off-White Air Jordan collab Sail dropped last month, it sold out within the first hour and generated 800 million hits during that time with no marketing spend.”
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Jordan is a Nike Inc. NKE, +0.14% brand.
Farfetch’s digital focus has been an asset as the shift to e-commerce accelerated during COVID-19.
“With the significant shift of consumer demand to online since the onset of COVID-19, brands and retailers’ focus on digital channels has intensified in Q2,” Neves said. “And we have expanded our partnerships to nearly 1,300 third-party sellers now participating on the Farfetch Marketplace, including more than 500 brands and over 750 retailers.”
Cowen analysts think Farfetch has set itself up for market share gains in the luxury space.
“We are encouraged by substantial growth at Farfetch versus other traditional luxury peers and believe Farfetch is gaining market share from both e-commerce and bricks-and-mortar competitors,” wrote analysts led by Oliver Chen.
“We view exclusive product offerings as vital for gaining market share in a highly competitive luxury market and driving higher full-price selling. Farfetch’s acquisition of New Guards Group allows Farfetch to offer consumers its original content, which should lead to both new customer acquisition and customer retention. Outside of New Guards Group, Farfetch has been building on its brand relationships to secure exclusivity for drop or capsule collections.”
Cowen rates Farfetch stock outperform and raised its price target to $33 from $26.
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“We believe physical retail will shrink rapidly (Neiman bankruptcy and we think monobrand retailers) and we think that luxury brands will want a strong multibrand online environment,” wrote KeyBanc Capital Markets analysts led by Edward Yruma. “Over 500,000 new customers in 2Q should provide a strong foundation for post-COVID-19 growth.”
Moreover, long-term trends will be supported by the Farfetch Platform Solution (FPS), which helped the company’s marketplace partners grow their business during the pandemic, and retail technology initiatives that will help stores post-coronavirus.
KeyBanc rates Farfetch stock overweight and bumped its price target up to $32 from $25.
As the luxury category took a hit during the pandemic, JPMorgan analysts think Farfetch was able to stand out, in part because for some, it was the only game in town.
“We believe Farfetch became an increasingly important partner to boutiques, brands and other retail partners during the height of COVID-19 as many physical stores closed and even some online competitors were unable to ship from their distribution centers,” analysts said. “For many partners, Farfetch was the only way they could generate sales during the pandemic.”
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With more inventory and help from FPS, Farfetch benefited.
“We think Farfetch is better positioned than any time since its IPO having made significant strides in direct brand e-concessions and adding selection from New Guards Group, while also showing greater cost discipline and commitment to Ebitda profit in 2021,” JPMorgan said.
JPMorgan rates Farfetch stock overweight and more than doubled its price target to $40 from $18.
Farfetch stock has skyrocketed more than 180% for the year to date while the Consumer Discretionary Select Sector SPDR ETF XLY, +0.14% is up 14.5%, the Amplify Online Retail ETF IBUY, -0.57% has gained 74.3% and the S&P 500 index is up 4.5%.
