Farfetch Shares Drop 50 Pct. From IPO Offering

Farfetch shares dropped to half their IPO price on Friday (Aug. 9), after it reported big losses and investors questioned whether a recent acquisition made sense for a company that isn’t profitable.

The Financial Times is reporting that the company’s announcement of a likely future slowdown in growth led to the loss of value. Chief Executive Jose Neves said the past two months had seen “unprecedented promotional activities.”

The company recently announced the acquisition of New Guards, which Neves said “brings a creative and industrial dimension to our suite of capabilities which, combined with our community of more than 650 boutiques, enables us to power and promote both new and existing creative names in the luxury industry to build the brands of the future.”

However, analysts are cautioning that the acquisition will not immediately translate into profits, and might not for a while. New Guards owns the popular fashion label Off-White, which was founded by Virgil Abloh, a Kanye West collaborator and occasional DJ who is now one of the most sought-after designers in the world.

Luca Solca, an analyst at Bernstein, said Farfetch is “far from making a profit,” and that the New Guards acquisition would cause investors to “have a harder time to verify that the underlying business model actually works.”

Farfetch took out a EUR300 million bridge loan from JPMorgan to fund the acquisition.

John Blackledge, an analyst at Cowen, said there is a danger that Off-White “may be near peak popularity,” but added that the company’s share woes are an overreaction.

Farfetch said its gross merchandise value would go down in Q3.

“The impact of the global consumption slowdown [is] starting to impact the fashion industry as well as Farfetch,” said Ella Ji, an analyst at China Renaissance in New York.

After-tax losses for Farfetch went from $17.7 million a year ago to $90 million. Revenues were up 43 percent to $209.3 million in the quarter, but the revenues cost $124 million.

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