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Stock of the week: Farfetch (FTCH)

“Luxury goods are the only area which it is possible to make luxury margins” – Berard Arnault, CEO of LVMH.

Farfetch listing on the NYSE

Farfetch's Business:

Farfetch is an online luxury fashion platform that sells bags, clothing, watches, etc. from over 3500 boutiques and brands worldwide. Call it – the Amazon… for luxury goods.

Seriously, they are one of the only websites that officially sell luxury goods such as Gucci, Dior, and Canada Goose. It is lead by CEO/Co-Founder Jose Neves, who founded the company in 2007. As a general rule of thumb, CEO Founders are an excellent thing to see when valuing a company. Not only do they have the best interests in the company (after all, they essentially built it), but they tend to have a relatively high stake in the company, tying their wealth to the performance of the company.

There are two things types of businesses I like: Tech and Luxury goods. Tech because of its resilience in a downturn and solid margins. Luxury goods because they too have high margins, but their market demographic tends to be higher banked. Therefore sales are less affected in comparison to other parts of retail in a downturn. Put them together, and you potentially have the crème de la crème tech/luxury hybrid.

One factor I do not like about luxury goods is picking a brand – since it is so cyclical. Maybe one year, Louis Vuitton’s popularity will spike due to a popular release. Next year its Gucci. Maybe Drake wears a Canada Goose jacket in his recent music video, but Stromzy is wearing Moncler. The point is, it is hard to predict a trend in fashion. That is why Farfetch is poised to succeed in this space, as it earns revenue regardless of which brands are in season.

Farfetch has had a fantastic run since its March Lows of $6.84, up nearly 300%. The current stock sits just under $27.

Farfetch’s Catalysts:

Due to the Coronavirus, people have been forced to shop online for goods – and this is no exception for Farfetch. In the last quarter, revenue rose 48% year to $721 Million and a reduced cash burn of just $12 Million. They received 500,000 new customers in the quarter, with overall traffic growing 60%.

The primary Catalyst for Farfetch would be another blowout quarter, cementing the customer demand for an online luxury marketplace.

Farfetch’s Risks:

Amazon. Amazon. Amazon. Amazon is stated to be launching its own luxury fashion platform that will operate like the Farfetch marketplace. Which, if successful, will be a huge demise for the stock. The Luxury fashion platform would have access to Amazon’s sprawling delivery and fulfillment infrastructure. However, there is a possibility that Farfetch’s first mover advantage with brands, plus boutique-like attitude to luxury, will help it fend off Amazon’s threat. On Amazon’s threat, CEO Jose Neves stated, “Our data and our conversations with brands indicate they [Amazon] are still far away from getting traction from the industry.”

Amazons store will have 12 high fashion Brands. Farfetch currently offers 3,500.

Farfetch: Conclusion

Displaying a strong lead, Farfetch is poised to benefit in the current environment. With a CEO/Founder at the helm, alongside dipping its toes in two high margin businesses, Farfetch is an excellent little position to have in any portfolio.

Fed keeps rates near zero, Tech CEOs testify

Fed's Chairman Jerome Powell has a clear message: They will not step off the gas when it regards stimulus. He stated in the previous Fed meeting, "We are not thinking about thinking about raising rates." Today? "We are not thinking about thinking about THINKING ABOUT raising rates." The Federal Reserve left rates unchanged, fluctuating from 0 to 0.25%.

NASDAQ in Blue, Gold in Orange, Dollar Index in Teal

Fed will continue to leave all support lines open, including bond-buying, low-interest rates, and dollar swaps for the foreseeable future. However, Chairman Powell states that the fed "[has not] looked at buying equities" and that they "[the fed] aims to ensure a strong recovery and to limit the damage." The Fed plans to keep on propping up the economy, no matter the implications/effects on the economy.

Jerome Powell also praised the banks stating they "have been a source of strength in this crisis" and that "banks are well-capitalized and strong." The conference drew minimal but expected moves from the market—gold slightly up while downwards pressure was placed on the dollar against major pairs. Equity markets edge sharply higher with the NASDAQ finishing at.

While the Fed battles with the Coronavirus, tech CEO's battle congress

While Chairman Powell spoke, a battle at Capitol hill (virtually) was ensuing against Congress and the CEO's of the 4 of the biggest tech companies: Google, Amazon, Facebook, and Apple. As they have grown to a collective market cap of just under 5 trillion dollars, they all have faced increased scrutiny regarding their market power and anti-trust issues. 

Mark Zuckerberg of Facebook on the top Left, Jeff Bezos of Amazon on the top right, Sundar Pichai of Google on the bottom left, Tim Cook of Apple on the bottom right

Amazon

CEO Jeff Bezos has been taking most of the brunt from congress as comments from the subcommittee grills him about anti-competitive practices on Amazon. With Bezos being the only CEO of the four that has not been to a congressional hearing, he has been relatively flustered with the questions, with Bloomberg Technology Reporter Spencer Soper stating that he is "clearly rattled, stammering quite a bit under tough questioning."

Facebook

It is not Mark Zuckerberg's first rodeo dealing with congress; he has testified previously, usually when Facebook attracts a lot of heat re: Cambridge Analytica scandal. He got scrutinized over their acquisition of Instagram, saying that they bullied the Instagram founders by showing them a product they were going to release called "Facebook Camera" if they did not sell the business to them. This continues with Snapchat, bullying CEO Even Speigel that he [Zuckrberg) would try to destroy the app if Speigel did not sell to Facebook. Mark Zuckerberg's response essentially states that Facebook copied a lot of competitors' features. 

Google

Google's CEO Sundar Pichai is fending questions regarding the grip Google has on their users' online lives as they control much of the Search, Email, Video, and Directions space. So far, Pichai has been the most defensive, using techniques to redirect questions and answering half questions. However, this seems to be enough for congress as they don't seem to be pushing hard on Pichai.

Apple

Apple's CEO Tim Cook got away with three and a half hours into the testimony, only being questioned about the App Store once. However, post recess, they continued to grill Cook about the accepting and rejecting of apps. However, it seems like congress is clutching on straws with no footing to substantiate the claim that Apple is engaging in unfair practices. They are struggling to shake Tim Cook. This is compared to Amazon's CEO Jeff Bezos, who has been repeatedly flustered with the questions thrown at him. 

 There is a lot of going on this week, which means a lot of volatility in the markets—trade safe, Trade Cautiously.