Farfetch (NYSE: FTCH), the online luxury marketplace, experienced a significant 18.1% surge in its stock during the afternoon session following reports that its founder, José Neves, is contemplating the possibility of taking the company private.
According to sources from The Telegraph, Neves is in discussions with major shareholders and financial institutions. Allegedly, Chinese e-commerce titan Alibaba and Swiss luxury conglomerate Richemont are tentatively expressing support for this potential move. The stock’s notable increase is attributed to the prospect of shareholders receiving a premium over the market price for their shares if the company undergoes privatization.
Farfetch’s shares have exhibited high volatility, with 67 movements exceeding 5% over the past year. However, such substantial fluctuations are uncommon, indicating that this news has significantly influenced the market’s perception of the company.
The most noteworthy event within the last year occurred approximately three months ago when the stock plummeted by 31.9%. This decline was triggered by disappointing second-quarter results, which fell below Wall Street’s expectations for key metrics such as gross merchandise value (GMV), active customers, revenue, and adjusted EBITDA. Revenue notably lagged by a substantial margin, and growth decelerated.
Looking ahead, the company significantly reduced its full-year GMV guidance and adjusted EBITDA guidance for the same period. During the earnings call, management attributed these challenges to macroeconomic factors, stating, “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 reported results were bleak, with minimal positive aspects. Following the disappointing results, Wall Street analysts downgraded Farfetch’s stock. KeyBanc analyst Noah Zatzkin shifted the stock’s rating from Overweight (Buy) to Sector Weight (Hold), citing “a less clear path to profitability.” Similarly, JP Morgan analyst Doug Anmuth downgraded the stock from Overweight (Buy) to Neutral (Hold) and reduced the price target from $15 to $6.
Farfetch has experienced a notable 52.6% decline since the beginning of the year, currently trading at $2.09 per share, which is 75.4% below its 52-week high of $8.50 from November 2022. Investors who purchased $1,000 worth of Farfetch shares five years ago would now be facing an investment valued at $93.17.