Farfetch under pressure after 50% tumble on Wall Street
Farfetch, the former unicorn with Portuguese DNA, has seen 50% knocked off the value of its shares over the past two days because of investor fears over a shrinking margin and accumulated debts bringing the company’s value to under €400 million.
On Wednesday, the company’s shares lost 50% in value, recovering by 12% on Thursday after having postponed publicising its results, which despite an increase in revenues, is seeing its business pressured on margin and is expected to post an overall loss after years of unprecedented profits.
Several key investors have already indicated that they don’t have any more money to invest in the online luxury goods platform founded in 2008 by José Neves. On Wednesday, the Swiss Richemont Group – one of its big investors — said that it was “looking carefully at the situation” and added that it did not have “any financial obligations with Farfetch, and does not foresee loans or investments in the company”.
Under market pressure, the founder José Neves is considering the possibility of taking the former unicorn, which used to be worth US$1Bn, but is now worth US$ 400 million, off the NYSE.
José Neves has a 15% shareholding in Farfetch, but controls 77% of the voting rights thanks to a dual share class shareholding structure. Other big investors apart from Richemont include the Chinese e-commerce group Alibaba and Artemis, a family holding belonging to he billionaire family Pinault.
Between 2019 and 2022, propelled by the uptick in online shopping, Farfetch’s annual revenues more than doubled to US$2.3Bn with 2023 expected to be equally buoyant for the company that had a turnover of US$ 1.3Bn in the first six months of the year.
However, the problem lies in its gross margin, which corresponds to its turnover minus the cost of its goods that has deteriorated year-on-year. In 2018, the year it made an IPO, its margin was 50%, earning a half of what it sold.
And although Farfetch revenues have doubled since 2018, its margin fell 44% in 2022, and continued to fall in the first half of 2023 in what has become a challenging market.