Farfetch Downgraded To Sector Weight: Analyst Cites Diminished Confidence In Profitability Timeline

KeyBanc Capital Markets analyst Noah Zatzkin downgraded Farfetch Limited FTCH to Sector Weight from Overweight.

FTCH posted softer 2Q results and lowered guidance amid a difficult environment. 

The analyst downgraded FTCH based on decreased confidence in execution and the timeline to profitability.

Macro headwinds and softness within Brand Platform GMV (-42% y/y CC) weighed on the quarter and softened expectations around Reebok ($200 million in FY23, previously $300 million) alongside y/y declines in the U.S. and China increased risk to achieving profitability in FY23.

Though the analyst sees cost rationalization initiatives positively, Zatzkin thinks reduced guidance implies a fairly tough 2H hurdle, given softer trends.

FTCH provided updated GMV guidance of about $4.4 billion (previously ~$4.9 billion, inclusive of ~$3.85 billion Digital Platform and ~$0.45 billion Brand Platform), which assumes an improvement in top-line trends in 2H as new partnerships materialize, notes the analyst.

Looking to FY23, FTCH expects GM improvement and sequential adjusted EBITDA improvement moving through the year, though now to a lesser extent: the adjusted EBITDA margin guide was refined to ~1% for FY23 (previously 1-3%).

Based on the above, the analyst lowered the FY23 revenue estimate from $2.866 billion to $2.500 billion. 

For FY24, the analyst lowered the revenue estimate from $3.473 billion to $3.038 billion.

Price Action: FTCH shares are trading lower by 46.5% to $2.54 on the last check Friday.