Login Open account
United Kingdom
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider.
Show more
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, FX or any of our other products work and whether you can afford to take the high risk of losing your money. Losses can exceed deposits on some products.
Show less
A look at the Farfetch valuation case A look at the Farfetch valuation case A look at the Farfetch valuation case

A look at the Farfetch valuation case

Equities
Peter Garnry

Head of Saxo Strats

Last month we wrote about Farfetch, the London-based technology platform for luxury fashion, as the company filed for IPO on NYSE. No information was released about the price range or the actual amount in the initial registration document. The initial F-1 filing stated that the proposed maximum aggregate offering price would be $100 million.

In the recent F-1 amendment, the offer size was increased to maximum $733.2m with a price range of $15-17 and expected pricing date is set to September 20, 2018, which means that expected first trading date is September 21. Farfetch’s business and outlook is described in our initial IPO analysis so please read that for background. Today’s update will only include sections on the offering and valuation.

The offering

Farfetch is raising $570.9m in new shares based on the mid-price and that the investment banks’ over-allotment option is exercised. Existing shareholders are also selling existing shares worth $119.2m. The shares will trade on New York Stock Exchange under the ticker symbol FTCH:xnys on SaxoTrader.
Farfetch F-1
Source: Farfetch, Saxo Bank
Based on 290,906,105 shares outstanding after the IPO (including options exercised) the market value at the mid-price is $4,654m. In addition, the company has issued several tranches of preferred shares with a book value of $742m as of June 30, 2018. The latest balance sheet shows that cash and short-term investments is $337m. Adding the $571m in proceeds from the IPO the company will have an immediate enterprise value of $4,489m after the IPO. 
Farfetch F-1
Source: Farfetch, Saxo Bank
Farfetch had 59% revenue growth in FY'17 slowing down to 55% H1 2018. The rapid growth is driven by massive expansion in operating expenses primarily used on administration and marketing. As a result, EBITDA has turned increasingly more negative although the EBITDA margin has improved somewhat (if an improvement of negative margins makes much sense).

Based on the H1 results we expect revenue to be up 53% in FY'18 taking revenue to $590.6m. Over the coming years we expect the revenue growth rate to slowly decay as the business matures and Farfetch slows down the growth in operating expenses to please investors with a more positive trajectory on operating profit (EBITDA).
Farfetch F-1
Source: Farfetch, Saxo Bank
Based on the estimated enterprise value and expected revenue in FY'18, the FY18e EV/Sales ratio is 7.6x. The FY'18e EV/EBITDA is not measurable or meaningful. 
Farfetch F-1
Source: Farfetch, Saxo Bank

Farfetch has not listed any direct competitors in the F-1 filing for direct peer comparison. However, based on our research their competitors are ASOS, Yoox Net-A-Porter Group (acquired by Richemont in June 2018) and Zalando. Their EV/Sales multiple (FY'18) is far below Farfetch’s:

● ASOS: 2.1x
● Yoox Net-A-Porter (latest, FY17): 1.9
● Zalando: 1.8x

It is clear from the valuation perspective that Farfetch is setting the valuation based on other technology platforms such as eBay, Etsy, Spotify, Netflix, Facebook, Twitter et cetera. It seems investor demand is high enough given the tight price range to accept this premise.

For Farfetch to live to those high expectations, the growth decay has be slow over the coming years with the business growing at least +40% on the top line each year to justify the valuation premium to ASOS, Yoox Net-A-Porter, and Zalando. Although the business model is not entirely the same, the question is whether it is so different to warrant such a big gap. Time will obviously tell and our view is that the first couple of earnings releases will be crucial for the stock price.

Risk profile

The Farfetch IPO comes with risks for investors. Key investment risks are slower online adoption/penetration than expected as luxury proves to be more a physical experience than online. The company is not profitable, which creates greater credit/equity risks for shareholders and creditors. The luxury fashion industry is highly competitive and fast-changing. which makes it difficult to predict. Farfetch is dependent on luxury sellers wanting to sell their goods on the platform and these sellers likely have the upper hand on the take-fees. GDPR could potentially slow down retail growth as it increases friction for customers.
 

Quarterly Outlook 2024 Q2

2024: The wasted year

01 / 05

Macro: It’s all about elections and keeping status quo

Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

Read article

FX: The rate cut race shifts into high gear

As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

Read article

Equities: The AI and obesity rally is defying gravity

Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.

Read article

Fixed income: Keep calm, seize the moment

With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.

Read article

Commodities: Is the correction over?

Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

Read article

  • Macro: It’s all about elections and keeping status quo

    Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

    Read article

  • FX: The rate cut race shifts into high gear

    As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

    Read article

  • Equities: The AI and obesity rally is defying gravity

    Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.

    Read article

  • Fixed income: Keep calm, seize the moment

    With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.

    Read article

  • Commodities: Is the correction over?

    Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

    Read article

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom
Products & pricing
Platforms
Accounts & service
General
Other
Legal

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, or any of our other products work, and whether you can afford to take the high risk of losing your money. The value of your investments can go down as well as up. Losses can exceed deposits on some margin products. Professional clients can lose more than they deposit. All trading carries risk.

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992