Farfetch’s [FTCH] share price is up around 160% so far this year, and 67% in the past three months alone. Last quarter, the online fashion platform’s revenues soared as lockdown accelerated the shift to online shopping.
So, will Farfetch's Q2 results see a similarly strong performance? Or will Farfetch's share price dip as lockdown measures ease?
When is Farfetch reporting Q2 results?
What could move Farfetch's share price post-earnings?
A 'top 5' stock pick
Farfetch’s share price may well be boosted by its inclusion on Miller Value Partners’ ‘top 5 stock picks’ list. In a letter to investors, the Baltimore-based investment firm cited strong earnings results on the higher end of guidance as a reason to include Farfetch in its Opportunity Equity Fund.
Alex Smith, writing on Insider Monkey, cautions against taking this optimism as the majority view of Farfetch’s share price.
"In Q1 2020, the number of bullish hedge fund positions on Farfetch Ltd stock decreased by about 19% from the previous quarter, so a number of other hedge fund managers don't seem to agree with Farfetch's growth potential," wrote Smith.
“In Q1 2020, the number of bullish hedge fund positions on Farfetch Ltd stock decreased by about 19% from the previous quarter, so a number of other hedge fund managers don't seem to agree with Farfetch's growth potential” - Alex Smith
Runway towards profitability
Miller Value Partners’ belief in Farfetch is based on impressive first-quarter earnings. In the results, Farfetch saw revenue increase 90% year-on-year to come in at $331m. Gross Merchandise Value (GMV) grew 45%, from $419m to $610m, while adjusted EBITA went from -$30m to -$22m. This suggests the online retailer is well on the way towards profitability, which it plans to hit in 2021. Miller Value Partners notes that GMV and EBITA both easily topped analyst expectations.
"Our strong balance sheet positions us well to navigate near-term uncertainties as we continue to build on our position as the leading global platform for the luxury fashion industry by focusing on delivering sustainable growth, while also improving cost efficiencies,” said Farfetch CFO Elliot Jordan when the results were released.
“Our strong balance sheet positions us well to navigate near-term uncertainties as we continue to build on our position as the leading global platform for the luxury fashion industry by focusing on delivering sustainable growth, while also improving cost efficiencies” - Farfetch CFO Elliot Jordan
What is Wall Street expecting in the results?
Wall Street is expecting Farfetch to post a loss of $0.35 per share this quarter, up from the $0.29 loss seen in the same period last year. Revenue, however, is expected to come in strong at $326.92m, a massive 64.2% increase from the $199.07m seen last year. Farfetch itself is expecting GMV to come in between $605m and $630m, a 25% to 30% gain.
The online retailer has also benefitted from analysts upping their price targets. Goldman Sachs recently raised their target for Farfetch’s share price from $21 to $27.40, which would see an upside of 9% on 11 August’s closing price. Merrill Lynch reiterated its $27 target on the stock, allowing for a 7.44% upside on Farfetch’s share price through 11 August’s close.
More widely, Farfetch's share price carries an average $22.18 price target from the analysts tracking the stock on Yahoo Finance. This would see an 11.74% downside on the current share price (as of 11 August’s close). Among the seven analysts offering recommendations, 6 rate the stock a Strong Buy or Buy.
For traders, it could be worth waiting for Farfetch’s share price to dip. While the stock is a growth play, there's a danger that it is now overbought, given analyst price targets. However, if the online retailer sees an Adjusted EBITA profit in 2021, there could be plenty of upside left in Farfetch's share price.