Farfetch (NYSE: FTCH) stock is down 42% premarket on the back of the results announcement of last night. The results are not, in fact, that bad. They’re just very much worse than everyone was hoping for. Within which is a very important message about markets and prices. It is not objective reality which matters in this short term. Sure, reality gets its look in over time. But the price right now is based upon everyone’s beliefs. And those beliefs are always about what the future holds - therefore the price is based upon hopes. And when those hopes get dashed then the price will move considerably.
The results aren’t, not objectively, that bad: “Farfetch Limited (NYSE:FTCH) cratered 32% after the close on Thursday. The company missed the average full-year revenue forecast and sales for the third quarter disappointed. The company’s outlook for the full year included revenue of approximately $2.5B, up from $2.3 billion in 2022 and compared to the average analyst estimate of $2.8B. For the second quarter, EPS totaled -$0.21 versus the consensus of -$0.23 and revenue of $572M compared to the expected $650.71M. The company has yet to turn a profit in its history as a publicly-traded company.”
What turns this into a 40% and change slump in the FTCH stock price is that gap between expected - or hopers perhaps - and reality.
We’ve talked before about Farfetch: “Farfetch (NYSE: FTCH) shares jumped 25% on Thursday, including postmarket, on the back of their results announcement. Some are noting that Farfetch has returned to growth with an 8% sales rise. This is not wholly and exactly true. Nominal sales have risen by that much. But we are in an inflationary environment, and so we need to consider the effects of that inflation. At which point it's not obvious that Farfetch is growing at all. This is one of the damages that inflation does to an economy, it makes it terribly difficult to work out what is really happening, - that then leading to a loss of efficiency in capital allocation and so on.” That was, of course, for the last reporting period, not for this one.
What’s really happening here is that hope value. The hope that sales would continue to grow at that old rate - and therefore start to provide the hint of a profit. It’s that that hasn’t happened which is proving to be the disappointment. And dashed hopes do change stock prices - as here.