What happened
Shares of Farfetch (NYSE: FTCH) pulled back again last month as pressure on high-priced, unprofitable tech stocks continued to push the online luxury fashion company lower. Even a better-than-expected fourth-quarter earnings report was not enough to get the stock out of the red in February. And the war in Ukraine also weighed on shares, pushing them down at the end of the month and into March.
According to data from S&P Global Market Intelligence, the stock finished the month down 12%. As you can see from the chart below, the bulk of its losses came in the third week of the month before a pop on its earnings report.
FTCH data by YCharts.
So what
Farfetch stock drifted lower through the first three weeks of February, continuing a decline in the stock over the last year. While there was no direct explanation for the sell-off, the combination of fears over inflation, rising interest rates, and the war in Ukraine seemed to contribute to the pullback.
Image source: Getty Images.
However, the stock surged after it reported fourth-quarter earnings that beat expectations and showed profitability was improving faster than expected.
The stock jumped 39% on Feb. 25 after the company reported a 23% increase in revenue to $666 million. That actually missed estimates at $676 million, but the market was more impressed with its improving profitability. Adjusted EBITDA increased $10.4 million to $36.1 million, and the company finished with positive adjusted EBITDA for the full year. On the bottom line, the company reported a loss of $0.03 per share, in line with estimates, but worse than the break-even result it reported in the quarter a year ago.
Looking ahead to 2022, the company expects growth in gross merchandise volume (GMV) of 28% to 32% in its core digital platform segment, and called for adjusted EBITDA margins of 1% to 2%.
Now what
Despite the post-earnings pop, the stock has declined sharply in the last two weeks as investors seem to fear the impact of the war in Ukraine, the broader impact on the luxury sector, and other geopolitical implications.
A J.P. Morgan analyst noted that 6% of Farfetch's GMV comes from Russia, which could disappear as sanctions mount against that country, and the fallout from the geopolitical shift could weigh on China, which is also seen as a major growth market for Farfetch.
With the stock down 40% since the earnings report, the sell-off seems overdone, but Farfetch is likely to trade at a discount until global tensions ease.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns and recommends Farfetch Limited. The Motley Fool has a disclosure policy.
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