Farfetch Stock Is Shooting Higher: Here's Why

Farfetch Ltd FTCH reported Q1 2023 sales growth of 8% Y/Y (+12% Y/Y in constant currencies) to $556.4 million, beating the consensus of $512.7 million.

Gross merchandise value for the quarter (GMV) remained flat Y/Y (+4% Y/Y in constant currency) at $931.7 million. 

Digital platform GMV fell 1% Y/Y (+2% Y/Y in constant currencies) to $799.7 million, while Brand Platform GMV rose 10% Y/Y (+15% Y/Y in constant currencies) to $109.7 million in Q1.

Adjusted EPS loss of $(0.16) beat the analyst consensus loss of $(0.42). The company held $485.9 million in cash and equivalents as of March 31, 2023.

2023 Outlook: Farfetch expects a GMV of around $4.9 billion, with a Digital Platform GMV of approximately $4.2 billion, and Brand Platform GMV of about $0.6 billion, and an adjusted EBITDA margin of 1% to 3%.

The analysts remain divided over the company's prospects. Some cheered the beat while others flagged the concerns.

Wedbush analyst Tom Nikic reiterates Farfetch with a Neutral and a $5 price target. The stock looks headed for a big squeeze higher at the open (up ~18% aftermarket). 

While trends did improve following a tough Q4, there were still some holes to poke this quarter: digital gross margin -500bps YoY, Average Order Value ("AOV") -10%, 3P GMV -8%. 

The analyst also flagged that much of the GMV growth this year and next comes from inorganic drivers (new FPS clients), and FPS's contribution to revenue and EBITDA is not as meaningful. Lastly, they are still a long way from true EPS profitability. 

Credit Suisse raised FTCH's price target to $12 from $11, and UBS increased its target to $5.25 from $5 earlier. Credit Suisse analyst Stephen Ju maintains Farfetch an Outperform and raises the price target from $11 to $12.

The re-rating reflects 1) a significant $300 billion addressable market remaining fragmented and underpenetrated, 2) relative protection from larger-cap online competitors, and 3) exposure to rising adoption of luxury goods in APAC and emerging markets.

Morgan Stanley analyst Lauren Schenk reiterated an Overweight rating with a price target of $20.

Sequential 1Q GMV improvement, further second QTD acceleration (with China returning to growth), and reiteration of FY23 guidance reflect that underlying fundamentals are improving and macro headwinds are waning. 

The analyst's FY23 estimates are unchanged and saw a sharply positive risk/reward skew.

On the other hand, Piper Sandler reduced the price target to $6 from $7 previously.

Price Action: FTCH shares are trading higher by 19.5% at $5.19 on the last check Friday.