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Today marks Capital Markets Day for Farfetch (NYSE:FTCH). What should have been a good day for the luxury goods retailer has taken a turn, however, after FTCH stock investors reacted poorly to an updated forecast.
Shares of FTCH have closed down 35% for the day. Farfetch already spent the past six months battling extreme market volatility. Now, it has issued the kind of forecasts investors don’t want to see, suggesting that short-term growth will not be as strong as some had hoped. This has left investors with unanswered questions as they wonder whether the company is still worth betting on.
Let’s dig deeper into Farfetch’s recent forecasts and what they mean for the future of FTCH stock.
A Closer Look at FTCH Stock
Until today, FTCH stock had spent the month performing relatively well. That’s impressive when we consider that shares spent most of this year in sharp decline, falling more than 83% year-to-date (YTD). However, it didn’t take much to send the stock into a freefall today. It’s also important to note that Farfetch’s forecast, while less than ideal, was by no means downbeat.
Per Seeking Alpha, the company “sees gross merchandise value being up 20% to 22%” to $4.9 billion for fiscal 2023. According to the news site, “This is expected to be driven by growth of the underlying business of 8% to 10% and GMV from signed partnerships” of about $500 million. The company anticipates an adjusted EBITDA margin of between 1% and 3% as well.
Looking forward, for fiscal 2025, Fafetch also “expects to deliver GMV of approximately $10B across its business.” The company also guided for about $3.5 billion in adjusted fiscal 2025 revenue.
The fact that FTCH stock has declined sharply in response to this news makes one thing clear: Wall Street isn’t happy with the projections. Although management expects to see certain metrics continue driving growth through 2023, it evidently isn’t enough for investors.
In a case like this, it’s important to take a macro look at the stock. Yes, Farfetch’s guidance predicts growth in 2023. But even an upbeat forecast wasn’t enough to push FTCH stock up. Investors seem to have been looking for an excuse to turn their backs on the company. The mixed guidance provided exactly what they needed.
With a recession looming, the economic landscape for luxury goods merchants looks questionable at best. What’s more, even after Ye’s (formerly Kanye West) antisemitic statements compelled many retailers to cut ties, Farfetch maintained its partnership with the celebrity. That implies that Farfetch may be desperate to maintain its consumer base. It could be struggling more than meets the eye.
The Bottom Line
As noted, Farfetch has spent the year trending steadily downward. Some investors have considered possibly buying it on the dip, but today should serve as a reminder why that’s a poor strategy.
Farfetch predicted growth in 2023, but that only had a negative effect on shares. If good news can’t boost FTCH stock, imagine what will happen when recession trends cast a dark cloud over the company. Farfetch hasn’t reported a positive catalyst since August and even that partnership news couldn’t keep shares in the green for long.
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On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.