Farfetch Has Vast Opportunity In Luxury E-Commerce, KeyBanc Says In Bullish Initiation

Farfetch Ltd FTCH should be able to sustain over 30% GMV growth in the medium term, given the company’s leading position in the underpenetrated luxury e-commerce market, according to KeyBanc Capital Markets.

The Analyst

Edward Yruma initiated coverage of Farfetch with an Overweight rating and $27 price target.

The Thesis

At just 10%, online penetration in luxury is significantly below apparel and could exceed 25% over the next five years, Yruma said in the Tuesday initiation note. (See his track record here.)

The accelerated customer adoption of e-commerce in luxury will be a meaningful tailwind for Farfetch, the analyst said. The luxury segment’s brand cyclicality and the importance of rapid and easy delivery give multi-brand retailers an advantage over single brands, he said.

While Farfetch will remain a predominantly third-party marketplace in the long term, its first-party business is likely to continue to grow in the near-term, Yruma said. This business has expanded from 8% of platform gross merchandise value in the fourth quarter of 2018 to 9% in the first quarter of 2019 — and could exceed 15 percent over time, he said.

Higher first-party penetration should help drive customer loyalty and boost revenue growth, especially since the total sale of first-party inventory is reported as revenue, Yruma said. Only the company’s take rate from third-party gross merchandise value is reported as revenue, he said.

KeyBanc expects Farfetch to invest heavily in several initiatives during 2019 and achieve breakeven EBITDA in 2021.

Price Action

Farfetch shares were up 1.86 percent at $21.39 at the time of publication Wednesday.