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Earnings

Farfetch share price: what to expect in Q2 earnings

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?

13 August

 

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.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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