Farfetch (NYSE:FTCH) stock popped by 20% to all-time highs in early November after The Information reported that Alibaba (NYSE:BABA) is in advanced talks to pour $300 million into the luxury fashion e-retail platform.

It’s big news because Alibaba is an established $830 billion e-commerce juggernaut that knows a thing or two about selling things online, while Farfetch is an emerging $10 billion e-commerce company that is trying to make it big.

If anyone can help Farfetch make it big, it’s Alibaba.

To that end, this is a dream partnership come to life for FTCH bulls — one that only strengthens the already compelling long-term bull thesis supporting FTCH stock, which I outlined five months ago and broadly involves this company turning into the Amazon (NASDAQ:AMZN) of global luxury fashion (or, perhaps more relevant now, the Alibaba of luxury fashion).

If that happens, FTCH stock could soar all the way to $120 in the long run.

The Future of Luxury Fashion Is Online

The core, long-term bull thesis on FTCH stock is really simple: This relatively obscure platform is doing everything right to emerge as the Amazon (or Alibaba) of the global luxury fashion market during the 2020s.

Of course, that bull thesis starts with the idea that the global luxury fashion market is ripe for enormous digital disruption over the next decade.

That market is quite big — about $300 billion in annual sales — and it’s supported by steady demand drivers, with sales rising at a 5% compounded annual growth rate since 2008. The market is also under-penetrated in terms of e-commerce (just 12% e-retail penetration, versus 30%-plus for the broader apparel category) and highly fragmented (there are several designer brands, but no go-to, consolidated marketplace for buying all these designer brands in one spot).

Thus, luxury fashion is a big, growing industry due for a digital makeover.

The Covid-19 pandemic inspired the beginnings of this digital makeover. Rising consumer demand for industry digitization and consolidation will sustain this makeover over the next several years, long after the pandemic passes.

Net net, e-commerce penetration in global luxury fashion will rise from 12% today, to 30%-plus over the next decade, implying enormous growth across this entire space over the next 10 years.

The Amazon of Luxury Fashion

Of course, as the luxury fashion market pivots online, there is an opportunity for some platform to emerge as the Amazon of this market, serving as a consolidated, go-to digital marketplace for buying and selling luxury goods.

Farfetch projects as that platform for one simple reason: Size.

Today, Farfetch is the largest luxury fashion online marketplace in the world, with 1,200-plus luxury sellers and more than 2.1 million active consumers. This unparalleled size in the luxury e-fashion market gives Farfetch multiple enduring competitive advantages, including:

• Branding. Farfetch is the brand for online luxury fashion, with unrivaled mind-share and brand awareness. As such, if a consumer is looking to buy or sell a designer item online, chances are high they will do so through Farfetch.
• Network effects. As a marketplace, Farfetch benefits from network effects wherein more sellers leads to more products, which leads to more buyers, which leads to more demand, and in turn attracts more sellers. Lather. Rinse. Repeat. It’s a favorable growth flywheel.
• Distribution. Farfetch has partnerships with most of the world’s top designer brands. These brands are unlikely to flood their product everywhere because they want to preserve an ambience of exclusivity. Therefore, it’s unlikely that designer brands that are already partnered with Farfetch, execute many more partnerships with Farfetch competitors.
• Resources. As the biggest player in the space, Farfetch has the most resources to attack the luxury e-fashion opportunity. Case-in-point: Alibaba is investing $300 million into Farfetch, and not some Farfetch knock-off.

Zooming out, then, it’s clear to see that if anyone is going to turn into the Amazon of luxury fashion, it’s going to be Farfetch. If the company does that, then FTCH stock has significant long-term upside potential.

Big Upside for Farfetch Stock

My base case scenario for Farfetch calls for FTCH stock to hit $60 within the next decade, implying 2X returns. But my bull case scenario calls for FTCH stock to soar to $120, implying 4X return potential.

The numbers here are pretty simple.

Top-down, the global market for luxury fashion will sustain 5% annualized growth on its way to $500+ billion in sales by 2030. E-retail penetration rates in that market will continue to expand, from about 12% today, to likely somewhere around 30% by 2030 (where the broader apparel category’s e-retail penetration rate sits today).

Farfetch owns about 5% of the global luxury fashion e-retail market today, up from about 2% in 2016. The biggest e-commerce players in the world own about 10% of the market. Reasonably speaking, Farfetch should be able to replicate that success in the luxury fashion vertical, implying 10% global market share within the decade.

If so, my modeling suggests that $8 billion plus in sales is possible by 2030, up from about $900 million in 2019.

Concurrently, gross margins should improve with strong demand, while opex rates should fall with scale. Assuming that combination drives pre-tax profit margins towards 15% by 2030, then Farfetch could be looking at around $3 in earnings per share by 2030. Based on a 20-times forward earnings multiple — which is historically average for consumer discretionary stocks — that equates to a $60 price target for FTCH stock.

My bull case simply adjusts e-retail penetration in the luxury fashion vertical up from 30% to 50%. It largely maintains all other assumptions. In that model, $6 in earnings per share is doable by 2030. The same math produces a $120 price target for FTCH stock.

Either way, there’s tons of upside left in this online retail stock.

Bottom Line on FTCH Stock

Farfetch stock is a long-term winner that’s been on tear over the past few months, and which — in part thanks to a big investment from Alibaba — will remain on tear for the foreseeable future.

Long-term investors would be wise to stick with FTCH stock for the next few years.