A Luxury Fashion IPO to Watch & Why
Farfetch is a UK company that was founded in 2008. Its mission was to become the single global luxury-fashion marketplace and it’s been succeeding in this area. To put this in perspective, tech giant Amazon has failed to attract luxury retailers to its platform.
At its last valuation in 2016, Farfetch was valued at $1.6 billion. Yesterday (20thAugust 2018) it filed its IPO (Initial Public Offering) with the New York Stock Exchange. Various reports suggest that the company will be raising for its IPO at a valuation between $6-8.37 billion. Soon you’ll be able to invest in this growing fashionista!
Farfetch works like Amazon, it’s basically the luxury fashion version of Amazon. Like Amazon, Farfetch handles logistics, fulfilment (shipping) and the technology behind your online store. They’ll even handle logistics and fulfilment for sales on your own website.
If that wasn’t enough, they’ve recently taken further steps to help their boutique and larger luxury retailers enter the Asian market. Farfetch acquired China based marketing company Curiosity China to handle the marketing for retailers that want to capitalise on one of the fastest growing markets for luxury goods. You can read more about them here.
It’s no wonder Farfetch has grown rapidly since 2015, doubling their revenue and buying luxury department store Browns, signing a global content and commerce partnership with Vogue publisher Conde Nast, signing a deal with one of the largest fashion players in the Middle East, Chalhoub Group, and securing a recent $397 million investment from China’s second largest e-commerce company JD.com – here’s some more light reading for you.
With nearly 1 million in active users and a growing luxury goods market (expected to reach $446 billion by 2025), this could be an IPO to watch!
Here’s a quick look at their financials and why they’re important if you’re gearing up to buy Farfetch stock on their first day of trading:
December 2017 – 935,772, up 43.6% since last year.
December 2016 – 651,674, up 56.8% from Dec 2015.
Active users are a measure of company growth. The logic is, the more active users, the more revenue. Active user growth can slow, and this is common as a company becomes more established. Some investors will sell out of a stock if the active user growth slows, this is not necessarily a problem if the value of each active user increases. A greater concern is when active users cannot be retained. If companies lose more users than they gain, this is when overall company growth can become a negative and greatly impact share price.
2017 - $386 million, up 59.4% from 2016.
2016 - $242.1 million, up 70.1% from 2015.
Revenue is another measure of company growth and one that investors pay close attention to. The logic is, the more revenue the more attractive the company is to an investor and the potential return on their investment (ROI).
First half of 2018 - $136.9 million.
First half of 2017 - $94.4 million.
Operating Profit measures the profits solely on the goods the company has sold, therefore, it doesn’t take into account depreciation, interest, tax charges or revenue from company investments.
The equation is as follows:
Operating revenue – cost of goods sold = operating profit.
This shows an investor how profitable a company is or could become.
First half of 2018 - $68.4 million.
First half of 2017 - $29.3 million.
Unlike operating profit, net loss shows the profit or loss for the company as a whole, taking into account all revenue and all expenses.
Companies that scale and particularly companies that scale fast often have net losses. There is significant cost in being able to expand a business quickly. Companies can also have net losses from trying new product offerings that are not well received or spending money on advertising that doesn’t bring in more users or revenue. If companies are losing more active users than they gain, then net loss is more of a concern as the companies’ ability to survive over the long term becomes questionable.
Gross Merchandise Value:
Gross merchandise value (GMV) 2017 - $909.8 million, up 55.3% from 2016.
Gross merchandise value (GMV) 2016 - $585.8 million, up 53.4% from 2015.
This is the value of all the merchandise that has been sold over a period of time. This is a marker of growth as retailers sell more or higher priced items. As Farfetch takes a fee from each item of merchandise sold, growth here relates to revenue growth.
GMV also shows how ‘in demand’ Farfetch’s platform is for luxury retailers.
If you think Farfetch is on to something, keep an eye out for their ticker symbol (the letters on the stock exchange they’ll be listed under) FTCH.
Please know, the value of investments can go up as well as down and you may receive back less than your original investment, meaning, when investing your capital is at risk.
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