Alibaba May Invest $300M in Luxury-Goods Firm Farfetch

Farfetch shares jump as a media report says e-commerce giant Alibaba is close to investing almost $300 million in the online luxury-goods retailer.
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Farfetch  (FTCH) - Get Report shares jumped on Monday after a media report said that Chinese e-commerce giant Alibaba  (BABA) - Get Report is close to investing almost $300 million in the online luxury goods retailer.

Sources told the technology publication The Information about the prospect of the investment. They also said Farfetch and Alibaba also are negotiating a Chinese joint venture.

Switzerland’s Richemont CFRUY, a luxury-brand company that includes Cartier, is mulling an investment in Farfetch alongside Alibaba, the sources said. Richemont already has a joint venture with Alibaba in China.

Alibaba wouldn’t be the first Chinese technology titan to invest in Farfetch. In January, TenCent TCEHY put in $125 million, and in 2017, JD.com  (JD) - Get Report invested $397 million in Farfetch, The Information reports. JD sold its Toplife luxury e-commerce platform to Farfetch last year, the publication said.

Farfetch recently traded at $32.03, up 14%. Shares of the London company have more than tripled this year.

On Aug. 14, when the stock closed at $28.56, Morningstar analyst Jelena Sokolova lifted her fair-value estimate to $18.40 from $17.10 “to reflect our increased assumptions for 2020 revenue, boosted by the accelerated shift to online buying during the coronavirus pandemic,” she wrote.

“Nonetheless, after more than doubling since the beginning of the year and almost quadrupling off the year’s lows, we believe [the] shares look expensive. 

"We still see competitive risks for Farfetch, as the online luxury market remains in the early stages of development and ... Farfetch has not secured a moat around its business model yet.”

Still, “we expect continued fixed-cost leverage to pave the way for Farfetch’s profitability as the company grows,” Sokolova said.