2023-12-18 07:02:00 ET
One of the biggest stories on Monday was the collapse of Ebix (NASDAQ: EBIX), a software company that was once valued at over $2.5 billion. Its collapse marks a major downfall for a firm that is well-known, especially in India.
FarFetch could be next
This year has seen several well-known companies go bankrupt. The best-known of these companies was WeWork, the shared office company that was once valued at over $45 billion.
The next company that could declare bankruptcy is Farfetch (NYSE: FTCH), an e-commerce company that focuses on the luxury market. The FTCH stock price crumbled by over 13% on Friday and was down by over 26% in the pre-market session.
This crash has brought its total market cap to less than $250 million, much lower than its all-time high of over $23 billion. The sell-off comes at a time when the company is scrambling to find financing from Apollo and other private equity companies.
It is unclear and highly unlikely that Farfetch will find financing because of the challenging state of the company. The most recent results showed that Farfetchâ€™s total revenue dropped by 1.25% in the second quarter to $572 million as its GMV rose to $1 billion.
The biggest challenge for Farfetch is that it is a highly leveraged company with almost $1 billion in long-term debt . It ended the quarter with over $453 million in cash and short-term investments.
While the cash balance seems fine, the reality us that Farfetch is a cash incinerator that burns over $300 million annually. This means that its cash balances will be depleted soon, which explains why it is looking to raise cash.
I believe that Farfetch will struggle to find an investor at the moment. Besides, any interested party would be better served waiting for the company to file for bankruptcy and then acquire the remnants for the cheap. This view was supported by a UBS analyst who wrote that:
â€œWe stay on the sidelines on FTCH and reduce our PT to $0.80 from $3.30 to reflect the current uncertainty and the possibility that the proposed Richemont deal may not eventuate given Richemontâ€™s announcement that it is evaluating all options.â€
Farfetch stock price analysis
The daily chart shows that the FTCH share price has been in a strong freefall in the past few months and is now trading at its all-time low. The stockâ€™s collapse gained steam on Monday as reports said that the company was looking for strategic investors.
It remains below all moving averages, signaling that bears are in control. Therefore, at this point, the risk/reward ratio for the stock is quite unfavourable since the company could go bankrupt in the near term.
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