By Senad Karaahmetovic
Shares of Farfetch (NYSE:FTCH) are down almost 6% after a Citi analyst initiated research coverage at Sell.
The price target of $6 implies a downside risk of 30% compared to Friday’s closing price of $8.57. While the analyst says the company has “best-in-class technology,” he sees a clear path to profitability.
In this respect, he sees three key risks associated with FTCH shares.
No YNAP transaction as transformational to EBITDA margin, a deal arguably more relevant for Richemont;
Excluding the positive contribution from the Off-White license, EBITDA is still far from breakeven and benchmarking key metrics with peers highlights areas of weakness; and
2025 break clause on the Off-White license poses significant risks (~US$100m) to EBITDA.
As far as the next catalysts are concerned, the analyst names the upcoming CMD, which will likely take place before the end of this year.
Elsewhere in Citi’s European Online Retail sector coverage, the firm started Zalando (OTC:ZLNDY)) at Neutral with a €22 per share price target.
“While we like the long-term investment story (including its 3P ambitions), we believe short-term earnings risks are still high and a re-rating seems unlikely until we move back to double-digits sales growth," the analyst concluded.