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Investigations  /  10.16.2019

Investigation of Farfetch Limited

Farfetch Limited (FTCH) Accused of Misleading Investors in IPO

According to the class action complaint against the company for alleged violations of the Securities Act of 1933, in September 2018, Farfetch sold approximately 50.88 million shares of Class A common stock at a price of $20 per share and raised proceeds of approximately $750.5 million. In its Registration Statement, Farfetch stated that “the global market for personal luxury goods was estimated to reach a record high of $307 billion in 2017” and touted a business model that allowed “for low expenditures, favorable working capital dynamics, minimal inventory holding, and an ability to drive stronger margins.” However, Farfetch failed to acknowledge that large scale online wholesale was vulnerable to pricing pressures due to the pricing volatility and heavy promotions of luxury goods. These issues became evident on August 8, 2019, when Farfetch reported a larger-than-expected loss of $89.6 million for second quarter 2019, a 406.9% increase over the prior period, citing promotional discounting to compete with the heavy discounts offered by large online retailers as the reason. On this news, Farfetch’s share price fell $8.12, or over 44%, to close at $10.13. Farfetch stock currently trades at around $8 per share, a 60% decline from its IPO price.

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