Farfetch (NYSE: FTCH) stock rose 23% during regular trading hours yesterday. After the close, FTCH shares then fell 8%. This came on the basis of a report that the founder could try to take the online retailer private again: “The founder of British luxury fashion site Farfetch plans to take the company private after a disastrous US IPO.” José Neves is said to be is in talks with bankers and top shareholders, including Cartier owner Richemont, about a deal that would bring an abrupt end to his brief but disastrous stint on the New York Stock Exchange. The company has lost more than 90 percent of its value since its listing in 2018. It is understood that Mr Neves’ plans to delist the company could be announced soon.”
This is the Telegraph, a perfectly decent newspaper. At least well connected to the British financial markets, if not so much with New York.
Another indicator that something could be happening is the delay in releasing its due results: “Farfetch (NYSE:FTCH) said Tuesday that it will report third-quarter financial results, originally scheduled for Nov. 29 , will not publish. The company added that it expects to provide a market update in due course and will not provide any forecasts or guidance at this time. You should no longer rely on previous forecasts or indications.” Now, whether this is an indication of catastrophe – possibly because Shein and Co. are entering the market – or a result of these possible ongoing discussions about privatization, who knows?
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Farfetch stock price from Google Finance
We’ve looked at Farfetch before: “Shares of Farfetch (NYSE: FTCH) rose 25% on Thursday, including the after-market, on the back of its earnings release.” Some note that Farfetch is bouncing back with an 8% increase in revenue has returned to the growth path. This is not entirely true. Nominal sales increased by this amount. But we are in an inflationary environment and therefore need to consider the impact of that inflation. At this point, it’s not obvious that Farfetch is growing at all. This is one of the damages that inflation does to an economy. It makes it terribly difficult to figure out what’s really happening, which then leads to a loss of efficiency in capital allocation, etc.”
For the next series of results, we looked at FTCH again: “Farfetch (NYSE: FTCH) shares fell 42% premarket last night following the earnings announcement. The results are actually not that bad. They’re just a lot worse than anyone hoped. There is a very important message in this about markets and prices. In the short term, objective reality doesn’t matter. Sure, reality takes shape over time. But the price is currently based on everyone’s beliefs. And these beliefs are always about what the future holds – hence the price is based on hopes. And if those hopes are dashed, the price will move significantly.”
The market assumes that this is a fundamental problem. Perhaps privatization could be the start of solving these problems. Our more cynical thought here is that the price could actually fall sharply. Insisting that previous guidance should not be relied upon. We think this could be a harbinger of really bad results. Of course, that would mean a significant drop in the share price. At this point, perhaps the announcement to go private. Or perhaps that’s too cynical, but we have concerns about these results – which means we believe the benefits of a deal will be limited. It could well be portrayed as a rescue for a company that has gone completely awry, rather than a fair bonus for current shareholders.
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