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Farfetch: IPO Valuation Update

Sep. 09, 2018 3:27 PM ETFarfetch Limited (FTCH)
Gary Alexander profile picture
Gary Alexander


  • Farfetch, the UK-based luxury e-commerce company, has updated its IPO filing with an indicated opening price of $15-17 per share.
  • The company has also indicated its intention of selling 37.5 million shares in the offering, with 7.4 million shares being sold by existing shareholders and the remainder being new issuances.
  • This structure indicates a massive $600 million IPO that would value Farfetch at $4.56 billion, living up to current market expectations that the company would notch a $5 billion valuation.
  • This valuation, however, makes Farfetch a relatively expensive company against ~$600 million in expected revenues this fiscal year.

Farfetch (NYSE:FTCH), the London-based e-commerce company that "exists for the love of fashion," has updated its IPO filing with its initial pass at pricing as well as its indicated offering size. With expectations of a giant $600 million IPO - about the same size as DocuSign's (DOCU) $629 million IPO earlier this year - Farfetch's debut in the public market will make waves.

Let's cut to the chase: I think Farfetch's valuation is rather expensive, living up to the expectations that the popular e-commerce company would hit a $5 billion market cap in this IPO. In the international e-commerce space, I'm more inclined to invest in Pinduoduo (PDD) - the market for everyday products, especially when catered to China's population of ~1 billion, is a much larger opportunity than Farfetch's market for luxury fashion. Farfetch's ~60% revenue growth is truly impressive, and its partnership with many leading fashion houses is a huge business moat that's difficult to replicate, but the company's growth simply pales in comparison to Pinduoduo, which in its most recent quarter hit ~26x revenue growth (yes, revenue multiplied by twenty-six times!).

Pinduoduo's rapid growth rate has been one of the main reasons that investors are beginning to back away from the de-facto Chinese e-commerce leader, Alibaba (BABA), though the visionary Jack Ma's retirement certainly doesn't help sentiment either. Like Farfetch, Pinduoduo primarily generates revenues through commission rates (Farfetch commands a ~30% "take rate" from its luxury sellers), and Pinduoduo's gross margin of 77% as of Q2 also trumps Farfetch's gross margin of 53%. The two companies are polar opposites - Pinduoduo sells primarily discounted items like a Costco (COST) of the web that is facing a current investigation for product quality and fakes, while Farfetch caters to the upper end of the market. Yet surprisingly

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Gary Alexander profile picture
With combined experience of covering technology companies on Wall Street and working in Silicon Valley, and serving as an outside adviser to several seed-round startups, Gary Alexander has exposure to many of the themes shaping the industry today. He has been a regular contributor on Seeking Alpha since 2017. He has been quoted in many web publications and his articles are syndicated to company pages in popular trading apps like Robinhood.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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