Farfetch Announces Another Flashy Acquisition, But Profitability Still Looks Far Off

Updated: 5:45 p.m. ET, August 8

Farfetch, with a $5.4 billion market cap, is the largest player in the rapidly growing space of online luxury marketplaces. But its stock has tumbled this year, from a high of $29.69 in March to $18.25 at today’s close, as the 12-year-old company has dug deeper into China, struggled to hit profitability and seen a major investor cash out.

All of those issues were weighing on investors when Farfetch released its fourth earnings report as a public company this afternoon. And with the losses continuing to mount and the announcement of another flashy, but pricey, acquisition, there wasn’t much to put their minds at ease.

The London-based company reported $89 million in losses (after tax) for the second quarter, ending June 30, down from $109 million in Q1. But perhaps the biggest news was that Farfetch is buying New Guards Group, which owns designer Virgil Abloh’s hot Off-White brand, for $675 million—adding to the company’s recent spending spree and perhaps putting profitability off even further.

Gross merchandise value reached $484 million, and revenue was $209 million, improving on Q1’s $174 million and topping estimates. But Farfetch isn’t expected to break even (before taxes) until 2021, Ed Yruma, managing director at KeyBanc Capital Markets, wrote in June. Just last month, Condé Nast pulled its £234 million stake in Farfetch, reportedly because of the company’s growing marketing spend.

Investors, too, may be losing their patience: Farfetch’s shares were down more than 40%, to $10.90, in after-hours trading.

The New Guards Group deal follows the acquisitions of Stadium Goods, in December, and Topline, in February, for a combined $300 million. Analysts saw those purchases as necessary spending to keep the company’s GMV growing and believe they will start to pay off as the luxury industry prepares to make a belated shift online.

Those two brands may carry other benefits for Farfetch. Stadium Goods, a streetwear-focused marketplace, provides an entry into the fast-growing sneaker segment, as well as reselling, another retail craze that investors are betting on. (Farfetch itself began testing a consignment platform for handbags in May.)

With luxury platform Topline, the company is looking to expand in China. In June, Farfetch opened its flagship store on JD.com, the Chinese e-commerce giant that sold off Topline and remains one of Farfetch’s largest shareholders. That move opens up the London-based company to 3 million Chinese consumers—“almost twice the size of Farfetch’s current active consumer base” in China, according to Marvin Fong, an analyst at BTIG—on a platform they were already familiar with.

The opportunity is huge: A report by McKinsey predicts that Chinese consumers will account for 40% of the world’s spending on luxury goods by 2025, totaling some $175 billion and up from a third now, and a separate report by Bain & Company expects that 50% of those purchases will be made in China, rather than abroad.

Investors are wary of how much of the sector’s growth is reliant on the country, and the U.S.-China trade war could present challenges. But the real question, now that Farfetch has committed nearly $1 billion to acquisitions in the last nine months, may be how long the company can survive in the red. The company has been public for less than a year, but it is more than a decade old. Just how long will its investors be willing to swallow losses?

This post first appeared on Forbes.com. To see the original, click here.