Today marks Capital Markets Day for Farfetch (NYSE:FTCH). What should have been a good day for the luxury goods retailer, however, took a turn after investors in FTCH shares reacted badly to an updated forecast.
Shares of FTCH closed down 35% for the day. Farfetch has already spent the past six months battling extreme market volatility. Now he’s released the kind of predictions that investors I do not want to see, suggesting that near-term growth will not be as strong as some had hoped. It has left investors with unanswered questions as they ponder whether the company is still worth betting on.
Let’s dig deeper into Farfetch’s recent predictions and what they mean for the future of FTCH stocks.
A Closer Look at FTCH Stocks
Until today, FTCH stock had spent the month performing relatively well. That’s impressive considering that stocks have spent most of this year in steep declines, falling more than 83% year-to-date (YTD). However, it didn’t take much to send the stock into a tailspin today. It’s also important to note that Farfetch’s predictions, while far from ideal, were by no means pessimistic.
By Looking for Alphathe company “sees gross merchandise value up 20% to 22%” to $4.9 billion for fiscal 2023. According to the news site, “This should be driven by growth of the underlying business by 8% to 10% and a GMV of partnerships signed” of approximately $500 million. The company also expects an adjusted EBITDA margin of between 1% and 3%.
Waiting, fFor fiscal year 2025, Fafetch also “expects to deliver GMV of approximately $10 billion across its business.” The company also guided about $3.5 billion in adjusted revenue for fiscal 2025.
The fact that FTCH stock fell sharply in response to this news clearly shows one thing: Wall Street is not happy with the projections. Although management expects certain measures to continue to stimulate growth until 2023, this is obviously not enough for investors.
In a case like this, it’s important to take a macro look at the stock. Yes, Farfetch forecasts predict growth in 2023. But even an optimistic forecast was not enough to lift FTCH stock. Investors seem to have been looking for an excuse to turn their backs on the company. Joint councils provided exactly what they needed.
With a recession looming, the economic landscape for luxury goods merchants looks questionable at best. Moreover, even after Ye (formerly Kanye West)’s anti-Semitic statements forced many retailers to cut ties, Farfetch has maintained its partnership with the celebrity. This implies that Farfetch is desperate to maintain its consumer base. He might be in more trouble than he looks.
As noted, Farfetch has spent the year steadily declining. Some investors have considered buying it on the downside, but today should remind us why that’s a bad strategy.
Farfetch predicted growth in 2023, but that only had a negative effect on stocks. If good news can’t boost FTCH stock, imagine what will happen when recessionary trends cast a dark cloud over the company. Farfetch hasn’t reported a positive catalyst since August and even this partnership news couldn’t keep stocks in the green for long.
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At the date of publication, Samuel O’Brient held (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.