The stock of luxury fashion retail platform operator Farfetch (FTCH -9.68%) wasn’t exactly looking pretty on Hump Day. Following an analyst’s recommendation downgrade, the company’s shares headed directly south to close the day nearly 10% lower in price. That decline was notably steeper than the 1.4% drop of the bellwether S&P 500 index.
Farfetch earns a double-notch downgrade from Société Générale
French bank Société Générale was the institution behind the Farfetch downgrade. Its analyst Abhinav Sinha pushed his recommendation down two pegs, from buy to sell. His price target is now $1.50 per share.
It wasn’t immediately apparent why he did so, but it doesn’t seem coincidental that Farfetch very recently announced an important development with its latest asset buy. On Monday, the European Commission (EC) cleared the company’s planned acquisition of a nearly 48% stake in online fashion retail business Yoox Net-A-Porter (YNAP) from Swiss luxury goods company Richemont.
In partnership with Emirati businessman Mohamed Alabbar’s Symphony Global investment vehicle, which is acquiring 3.2% of Yoox, Farfetch will hold a slight majority in YNAP.
That deal has a fairly long tail. It was first announced in August 2022 and included the price — 53 million to 58.5 million Farfetch Class A ordinary shares to be paid to Richemont for Farfetch’s part in the acquisition. On the fifth anniversary of the arrangement’s close, Farfetch will be on the hook for an additional $250 million worth of the same stock.
A nearly $340 million acquisition in total
So, using Farfetch’s current stock price of $1.68 per share, the company’s total outlay for YNAP will eventually total almost $340 million. Investors (and, perhaps, Sinha) might consider that a bit pricey, considering their company only earned $359 million in net income last year and has often posted losses on the bottom line.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Farfetch. The Motley Fool has a disclosure policy.
