by Ian Harvey
November 15, 2020
Farfetch shares rallied more than 12.8% after the market closed Thursday due to third-quarter sales and fourth-quarter growth projections that beat analysts’ estimates.
Stock Options Made Easy “Armchair Trader”Members make potential profits of 373% whilst "Cut-to-the-Chase Members," having just executed a trade Wednesday, were up 65%.
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Shares of luxury boutique online sales-platform provider FTCH shares surged on Friday, up nearly 11%, after the company announced third-quarter sales and fourth-quarter growth projections that beat analysts’ estimates; an analyst upgrade by KeyBanc also helped push the share price higher.
Farfetch Ltd. engages in the retail of fashion and luxury goods. It offers womenswear, menswear, kidswear, vintage, fine watches, and fine jewelry. The company was founded by José Manuel Ferreira Neves in 2007 and launched in 2008 and is headquartered in London, the United Kingdom.
Farfetch showed no signs of slowing down during the pandemic as gross merchandise volume (GMV) on its platform rose 62%, driving a 71% increase in revenue to $438 million, which easily beat estimates at $367.1 million.
The company also saw margin expansion in the quarter as gross margin rose 45.1% to 47.8%, driving an 82% increase in gross profit to $209 million. Its adjusted EBITDA loss narrowed from $36 million to $10 million, and the company posted an adjusted loss per share of $0.17, an improvement from a per-share loss of $0.20 a year ago and better than estimates at a loss of $0.40 per share.
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Let’s Have A Look At The Recommendations…..
……that were executed by “Armchair Trader Members” on Tuesday, September 01, 2020.…..and "Cut-to-the-Chase Members" on Wednesday, November 11, 2020.....and find out why we had call options trades on Farfetch shares.
1. "Armchair Trader Members” Trade.....
** OPTION TRADE: Buy FTCH JAN 15 2021 30.000 CALLS at approximately $4.00.
“Farfetch Ltd (NYSE: FTCH) is the leading digital sales platform for the fashion industry, and is growing at a rapid clip, and is eyeing up 2021 as the time it reaches positive adjusted EBITDA.
It's a valuable partner for department stores and luxury boutiques that may not have the means to set up a direct-to-consumer fulfillment operation. Farfetch believes that its relationships with luxury merchants cannot be easily duplicated and represent a key competitive advantage.
The company delivered a record second quarter with digital platform gross merchandise value reaching an all-time high of $651 million, up 34% year over year. Revenue surged 74%, and its top 20 brands that sell direct to consumers over Farfetch's marketplace saw sales double year over year.
In a press release, CEO and founder Jose Neves said, "I believe this ongoing acceleration behind our business results from a paradigm shift in luxury shopping, as the industry undergoes a major acceleration of the secular online adoption I envisioned in founding Farfetch."
The acceleration it experienced during the rise of pandemic has continued into the third quarter. The demand surge puts Farfetch on pace to reach profitability based on an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) basis by 2021.”
2. "Cut-to-the-Chase Members” Trade.....
** OPTION TRADE: Buy FTCH JAN 15 2021 45.000 CALLS at approximately $3.75.
"Last Thursday Farfetch Ltd (NYSE: FTCH), the leading digital sales platform for the fashion industry, entered into a new joint partnership with Richemont, which owns luxury e-commerce competitor Net-a-Porter, and the Chinese e-commerce giant Alibaba. Farfetch will have an online store on both of Alibaba’s Tmall luxury platforms, Luxury Pavilion and Luxury Soho, while Alibaba and Richemont will jointly invest $600 million in Farfetch, taking a combined 25% stake in Farfetch’s Chinese ventures.
It’s a major move for all parties involved, significantly expanding Farfetch’s reach outside of the U.S. and Europe, adding potentially hundreds of new brands to Tmall’s platform through Farfetch and giving Richemont yet another stronghold on luxury e-commerce compared to its main rivals LVMH and Kering. But also impacted will be the hundreds of brands and boutiques that sell through Farfetch and will now have access to the incredibly lucrative, and notoriously difficult to reach, Chinese market.
China has strict laws about how non-Chinese businesses are allowed to operate in the country, and for many smaller brands, the barriers are too high to clear. The same rules apply whether businesses are opening a physical store in China or only selling online.
“The bar to sell in China is quite high for brands on their own,” said Christina Fontana, Alibaba’s fashion and luxury director for Europe. “Setting up a legal entity in China is time-consuming and difficult. This is one of the reasons we started partnerships with marketplaces like Net-a-Porter and Farfetch. The brands that sell on those platforms now also have a presence in China.”
Alibaba and Richemont will invest $300 million apiece in Farfetch. The investment will be through the purchase of 0% convertible senior notes due 2030 issued by Farfetch. Alibaba and Richemont may require Farfetch to repurchase all or some of the notes on June 30, 2026 at full price.
Alibaba and Richemont will also each invest $250 million in a new joint venture, Farfetch China, taking a combined 25% stake. The two companies will also have the option to take another combined 24% stake in the venture after the third year.
These investments are expected to close during the first half of 2021."
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Why the Numbers.....
Farfetch announced a partnership in the quarter with Alibaba and Richemont, who will invest $1.15 billion in Farfetch, which sparked a surge in the stock when the news broke early in November.
Luxury sales have held up surprisingly well during the crisis as the wealthy consumers have been relatively unaffected by the pandemic, and the industry sees a permanent shift to digital platforms like Farfetch's.
"What we are seeing is the acceleration of the secular trend of online adoption in luxury – an industry that is still very underpenetrated," CEO Jose Neves said in a statement. "The capabilities developed across the Farfetch platform over the past 13 years in anticipation of the eventual digitization of the luxury industry uniquely position Farfetch to capture this opportunity today."
In December 2018, Farfetch acquired online sneaker platform Stadium Goods for $250 million. In February 2019, Farfetch agreed to merge its Chinese business with JD.com
The company has more recently has pivoted to offering its technology to established luxury brands and department stores that want to make the jump to e-commerce.
Farfetch's guidance for the fourth quarter was also encouraging as the company expects a 40% to 45% increase in digital platform GMV to $880 million to $910 million and positive adjusted EBITDA. A number of analysts responded to the report with generous price target hikes.
The Analyst Upgrade.....
KeyBanc analyst Edward Yruma lifted his price target on Farfetch to $50 from $32 and kept his overweight rating on the shares, noting among other positives that he expects the company to continue to benefit from department stores’ pandemic-driven shift to online sales.
Farfetch's growth story is far from over. As one of the largest online marketplaces for luxury goods, the company greatly benefited from the pandemic, as more people went online to purchase goods since luxury stores around the globe were closed in the first half of the year.
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It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!