Megapost Part #2
Philo updates on Farfetch and Wayfair. Next up, ASOS etc.
Picks from Philoinvestor
Netflix is up 120% since I wrote about it.
Piece removed from paywall.
In this multi-part megapost (this is Part #2) I will review the performance of all the companies I’ve written about, and offer updates where I believe they are required.
Philoinvestor launched in October 2021 and since then I have published 17 paid posts. See them below.
For Part #2 I have included updates on Farfetch and Wayfair.
Paid Post List
Dump your Crypto. October 27th, 2021 @ BTC >$60,000 & ETH >$4,300
Updates on Wayfair, Vermilion and Farfetch. January 24, 2023
Farfetch
The stock is down 83% since posting. What has happened since then? Well, a perfect storm, but let’s dig deeper.
One month after posting, Russia invaded Ukraine. Energy-related prices spiked, so did inflation, equities and consumer confidence started tanking. Farfetch is a growth company, investing aggressively and increasing overheads in the process. A year of no growth wasn’t great for them.
As the company was forced to abandon the Russian market (with 100,000 motivated customers), another hugely promising market for them wasn’t going great either. Lockdowns in China were getting out of hand - and investors couldn’t read Xi Jingping’s intentions. Naturally, the Chinese luxury customer wasn’t able or motivated to spend big on luxury via Farfetch.
The market was getting jittery and wasn’t willing to hold this name into all this stress and uncertainty. And it’s not like the European and UK markets were in an economic boom either — the inflation crunch was squeezing consumers and lowering their purchasing powers.
Investors relate Farfetch with affluent periods and economic booms. The knee-jerk reaction was to sell - and so they did.
Btw, I wrote a second newsletter on Farfetch, this January:
Excerpt below. So let me give you some context on the crashing share price…
What happened in the Capital Markets Day? 🤬
On its Capital Markets Day (CMD) on December 1st, the stock opened at $8.60 and closed the day at $5.50 (down 35%), in the next few days it faded to ~$3.60. Investors were livid 🤬 - it then rebounded to a high of $8.
On the day, Farfetch outlined the full year forecasts for 2023 & 2025.
For 2023
GMV of $4.9 billion (22% increase from ‘22). Growth expected to come from a ~9% growth in GMV and $500 million in GMV from signed partnerships.
Adj. EBITDA Margin of 1% to 3%, driven by improved Gross Profit and Order Contribution margins in addition to operating cost efficiencies of approximately $85 million.
2025 Forecast and Analysis
Expectations for a GMV of ~$10 billion, of which Marketplaces is projected to represent $3.8 billion, with expected growth of the underlying business of 8% to 10% per annum.
Platform Solutions is forecasted to represent $4.3 billion, driven by the addition of signed partnerships including Bergdorf Goodman, Ferragamo and Richemont Maisons and Yoox Net-A-Porter, as part of the wider partnership with Richemont. PRESENTATION
Brand Platform is forecasted to represent $1.5 billion, driven by 5% to 10% growth of the underlying business and contribution from the signed partnership with Reebok.
Adj. EBITDA Margin is forecasted to be 10% of Revenue, driven by Order Contribution Margin performance, in addition to scaling of operating costs.
Which means management guided for higher GMV and much higher profitability for 2023 and 2025! So why did the market panic? Why did they dump the shares?
Some were saying that forward guidance on sales growth and profitability was very weak. That management overpromised and underdelivered and now they lack credibility - UBS thinks so too but say that a few quarters of solid performance would reverse that negativity. (Thanks, UBS!)
Well, it’s been two quarters since and performance has been solid. For Q1 2023, revenue beat by 8.5%, causing shares to spike by up to 30%.
What does the future look like for Farfetch?
“Our most profitable insights have come from recognising the deep reality of some businesses, not from being more contrarian than anyone else.”
-Nick Sleep
This quote from legendary investor Nick Sleep resonated with me, in fact I think it’s one of the main differences I have relative to other value-oriented investors. I work hard to isolate advantages and think down the line to see where they will take the company - “Destiny analysis” as Nick Sleep likes to say. So here I will try to focus on a few key variables/advantages that Farfetch is set to benefit from going forward, that will make its destiny.