This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk04: Good afternoon. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to Farfetch third quarter 2020 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press the pound or hash key. Thank you. And I'd like to turn the call over to Alice Ryder, VP of Investor Relations. Ms. Ryder, you may begin your conference.
spk02: Hello, and welcome to Farfetch's third quarter 2020 conference call. Joining me today to discuss our results are Jose Neves, our founder, chairman, and chief executive officer, and Elliot Jordan, our chief financial officer. Before we begin, we would like to remind you that our discussions today will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements, and forward-looking statements made today speak only to our expectations as of today. We undertake no obligation to publicly update or revise them. For discussion of some of the important risk factors that could cause actual results to differ, please see the risk factor sections of our Form 20-F filed with the SEC on March 11, 2020, and in Exhibit 99.2 to our Form 6-K filed with the SEC on April 27, 2020. In addition, we will refer to certain financial measures not reported in accordance with IFRS on this call. You can find reconciliations of these non-IFRS financial measures to the IFRS financial measures in our earnings press release and the slide presentation, both of which are available on our website at barfetchinvestors.com. And now, I'd like to turn the call over to Jose.
spk07: Thank you, Alice, and thank you all for joining us today. I'm very pleased to be speaking to you about Farfetch's Q3 2020 results. Our business accelerated in Q3 to deliver record group GMV of $798 million. This record performance was underpinned by the digital platform, which accelerated to generate GMV growth of 60% year-over-year. our highest digital platform GMV growth in 10 quarters. We believe we're witnessing a paradigm shift in the way people buy luxury. From day one, FastHatch set out with a differentiated vision to enable the luxury industry by building a full suite of capabilities to connect the creators, curators, and consumers who are the last blood of the luxury industry. This has not only positioned Farfetch to capture the accelerating online demand resulting from increased consumer adoption in light of the continuing global pandemic, but we are actually helping drive this paradigm shift for consumers as well as for brands. Our Q3 performance was achieved during a quarter when most of the world had reopened physical retail following widespread lockdowns during Q1 and Q2, and when most consumers had the option of returning to their local luxury boutiques and department stores. This online adoption is consistent with what our recently acquired customers are telling us. In a recent survey of our newer customers, 45% said they will continue to do more of their shopping online now that they are used to it, and 23% said they would do most of their shopping online from now on. This clearly indicates that the luxury industry will not go back to the same normal as we knew it pre-COVID-19. and affirms my belief that we're witnessing a major acceleration of the sustained online adoption I had anticipated when I founded Firefetch 13 years ago. Q3 GMV for the Firefetch marketplace, which represents the significant majority of our GMV from consumers, grew more than twice as fast as in Q2 2020, largely driven by active consumer growth. as we leaned into a lower customer acquisition cost, or CAC, environment to drive efficient growth of our luxury consumer base, particularly via mobile app downloads. On top of this, we've continued to focus on retention by leveraging our vast data resources to offer a more relevant experience, and it is delivering results. Conversion rates for our data-driven personalized communications are 1.5 times higher than non-personalized messages on average. Our implementation of machine learning technology, such as our proprietary INSPIRE algorithm, are also driving engagement with these consumer communications, which is on average five times higher. This has contributed to a month-over-month improvement in retention rates from March through the end of Q3. To date, we have driven online adoption through our performance marketing-led customer acquisition efforts, and in Q3, we also set out to complement these efforts by building awareness of the Passage brand to ultimately increase organic engagement. You've heard me say before that Farfetch is a bigger company than it is a brand. While we've managed to build the leading global luxury fashion platform without meaningful branding investments, luxury is an industry of brands. And we see significant opportunity ahead in building awareness of Farfetch. With the industry in a critical phase of online transition, now is the right time. In September, we launched a new, upper-funnel marketing campaign, marking a key milestone in our Chapter 2 growth strategy. The campaign, taglined Open Doors to a World of Fashion, is focused on building brand love and an emotional connection to Farfetch by communicating what makes Farfetch unique, who we are, and what we do. The campaign was rolled out in Shanghai, New York, London and the Middle East, across out-of-home, print, social and online channels, as well as our first foray into addressable TV. In conjunction with this, we also launched a new brand identity for Farfetch and refreshed the look and feel of all external and internal facing touchpoints, including the marketplace. Not only are we seeing positive reactions from consumers who are saying that the new, clean, modern and luxurious look and feel allows them to focus more on their shopping journey, but luxury brands have also remarked on the elevated image of our marketplace following our rebranding. We're very pleased with the initial feedback and will amplify our campaign over the coming months to continue driving our unique brand positioning. In addition to driving online adoption by consumers, Farfetch is also powering the digital transformation for luxury brands and retailers. The accelerating demand we have seen across the Farfetch marketplace is driving heightened interest from brands and retailers who have taken note of luxury consumers' increased adoption of online channels. and far-fetched consumers are particularly attractive to brands and retailers. They represent one of the largest global audiences of luxury shoppers, and about two-thirds of our consumers are millennials or Generation Z. A higher proportion than the overall luxury industry, which offers our brand and retail partners, increased exposure to the customer segments set to fuel the future growth of the luxury industry. Additionally, our focus on delivering full-price sales has made Farfetch a particularly attractive channel for new and existing partners. many of whom see this challenging environment as an opportunity to take the actions needed to tilt their distribution strategy away from wholesale, towards direct-to-consumer, including by leveraging Farfetch's multi-brand e-concession model. Our record Q3 Digital Platform GMV reflects an increased mix of products sold at full price, and products sold without any promo. In fact, we had a 70% year-on-year reduction in promotional days during the period. And as we head into the Q4 promotional period, during which time we expect to see an aggressive push by our competitors in response to further physical shopping restrictions and concerns in light of the current resurgence of COVID-19 infections, Our plan is to continue executing on this strategy with respect to less promotions. This stance has strengthened our ties with our existing e-concession brands and attracted some of the most desirable brands to the Farfetch marketplace. We are thrilled to welcome Moncler, a top 10 brand on the marketplace. and have also recently signed Dolce & Gabbana, Ralph Lauren, and our first brand from the Swatch Group, Radlo, as new e-concessions, in addition to integrating additional supply points from existing brand partners who leaned in to the marketplace proposition. As a result, we saw our highest ever depth of inventory in Q3, and our overall supply partnerships have expanded to more than 1,300 third-party sellers now participating on the Farfetch marketplace, including more than 550 branded concessions and over 750 retailers. The strong results for both consumers and brands demonstrate the unique positioning of our global platform. which I believe will emerge from the current environment structurally stronger. And last week, we announced plans to work together with Alibaba and Richemont to build on Farfetch's existing platform capabilities to realize the luxury new retail vision, which is an extension of Farfetch's long-held strategy to be the global platform for the luxury industry. I am excited by the prospects of leveraging the leading-edge expertise Alibaba possesses in the areas of omni-channel and in-store technologies to accelerate its digitization of luxury by offering a suite of products powered by FastEdge, which will encompass both online and in-store technologies in both multi-brand and monobrand environments. In doing so, Luxury New Retail will enable leading luxury brands with one single partner and integration to achieve a global omnichannel presence via monobrand destinations, connected retail stores, WeChat, and the two leading online luxury fashion destinations, Parfait's Marketplace and T-Mall's Luxury Pavilion. I'm also thrilled to be partnering with Alibaba to form the Luxury New Retail Steering Group, and that we will be joined by Richemont Chairman, Johan Rupert, and Artemis Chairman, François Rippinot. Additionally, the formation of our China JV and our launch of a fast-edge star on T-Mobile Street Pavilion, which we are expecting for NEET 2021, will boost our exposure to include the 757 million consumers across the Alibaba Group. This initiative will be underpinned by $1.15 billion of total investments by our strategic partners into Farfetch, providing additional capital which further strengthens Farfetch's position to go after the opportunity of powering the future of luxury retail. And with that, I'd now like to send a call over to Elliot for a financial review.
spk08: Thank you, Jose, and hello, everyone. Farfetch continues to operate from a position of strength, both operationally, as Jose has been outlining, and from a financial perspective. Across the group in Q3, GMV grew 62% year-on-year to $798 million. Adjusted revenue increased 69% year-on-year to $387 million. Adjusted EBITDA, our measure of underlying operating profitability, improved $26 million compared to Q3 2019 to minus $10 million, taking our adjusted EBITDA margin to minus 2.7%. And finally, our cash position closed the quarter at $757 million, with a further working capital benefit offset by a $42 million tax payment in the current quarter. These results represent a big step forward for Farfetch, with strong growth across the business, improving gross margins, further operating cost leverage and substantial progress towards achieving our goal of full-year adjusted EBITDA profitability in 2021. I'd like to share some specific insights about the Q3 performance from our three business segments. First, our digital platform. This platform delivered GMV of $674 million, representing 60% year-on-year growth on reported results and 61% growth on a constant currency basis. Our marketplace growth accelerated as we continue to see strong demand from new customers and strong retention of existing customers. SPS growth also accelerated with strong results across all our SPS clients. The addition of harrods.com and offwhite.com earlier in the year, as well as three new branded websites for the new guards group in the quarter. These new first-party original sites, as well as high demand on the marketplace, have driven first-party GMV growth of 116% year-on-year to 17% of platform GMV. GMV growth from third-party sellers also accelerated to 50% year-over-year at 83% of platform GMV, and we achieved a sequentially higher take rate of 30.4%. As a result, digital platform services revenue grew ahead of GMB at 68% year-on-year to $263 million. Margins on the digital platform improved significantly in Q3 with order contribution nearly doubling year-on-year to $97 million and order contribution margin increasing to 37% compared to 31% a year ago and 35% in Q2 2020. There were four key drivers of the 560 basis point year-on-year improvement to digital platform order contribution margin. First, 280 basis points improvement from reduced funding of customer promotions year-on-year. 100 basis points of improved contribution from our first-party business being a combination of increased full-price mix and growth in our direct-to-consumer first-party original products partially offset by the mix effect of the lower absolute first-party gross margins versus the third-party business. a negative 260 basis points impact from charges associated with the introduction of digital services tax that we are currently absorbing, and an increase of 440 basis points through an improvement in demand generation costs year on year. This significant improvement in terms of demand generation saw the cost drop down to 6.9% of digital platform GMB. its lowest level in the last two years and was primarily due to increased efficiency in our bidding engine improved efforts to drive re-engagement from existing customers through low-cost channels such as our app and a less competitive digital advertising environment this has resulted in remarkable results in the marketplace New customers continue to drive a stronger mix of GMV than in previous years and we added 400,000 new customers in Q3 following the 500,000 new customers acquired in Q2. This is whilst achieving lower customer acquisition costs year on year. Overall traffic grew at approximately 50% year on year on a lower cost per visit and higher conversion rate. App installs grew more than 70% year-on-year, with app now driving over 50% of GMV with higher engagement than desktop users. Our app and mobile web represented more than 75% of transactions within the quarter. A higher full price mix year-on-year contributed to the highest quarterly average order value year-to-date of $574. although this was still down year-on-year by 1% as we continue to see more units sold in lower price point categories. This work means we are achieving very strong economics from our customer cohorts. The Q1 2020 cohort, now six months old, has recovered its CAC and is now fully paid back. The three-month LTV of the Q2 cohort is higher than the past seven quarters of cohorts. This LTV combined with a lower customer acquisition cost and promo spend means the cohort generated our highest three-month LTV over CAC ratio in 11 quarters, and our more mature cohorts are delivering greater than 60% order contribution margin. Turning now to our brand platform, representing our connected wholesale business, which generated $112 million of GMV and $59 million of gross profit for a 52% gross margin. This margin reflects the phasing of deliveries across Q2 and Q3 and reverses the dip in margin we saw in Q2 to achieve a year-to-date gross margin of 49%. in line with our expectations. Finally, our in-store segment saw a slight year-on-year increase in GMV to $11 million with the addition of new flagship stores for Off-White and Stadium Goods. Turning to our cost base, where we have continued to drive strong operating leverage and efficiencies year-on-year. Our G&A costs and the operating costs of our technology platform totaled 45% of adjusted revenue in Q3 2020, compared to 51% in Q3 2019. We have delivered substantial leverage from our technology platform, our services platform, and from our corporate functions. This has allowed us to invest into the refresh of the Farfetch brand and our employees, both in terms of their well-being as we help them to continue to navigate the challenges coming from the pandemic and ensuring we've accrued the all employee annual performance based bonus in line with full year expectations. Q3 depreciation and amortization was $54 million and our share-based payment expense was $82 million, reflecting the change in provision for employment-related taxes on the back of the higher far-fetched share price at the end of September 2020. Turning now to our outlook for the fourth quarter. The business is extremely well placed to continue to execute on its strategic and financial goals. The strong momentum means we now expect that Farfetch will achieve its first quarter of profitability as a public company at the adjusted EBITDA level in the coming quarter. Whilst we expect we will achieve this extremely important milestone ahead of market expectations, I would like to point out that seasonality and business trends mean we do not expect to deliver a positive adjusted EBITDA every quarter of 2021, but we do remain committed to achieving our profitability target for the full year of 2021. Whilst the paradigm shift to online continues in the quarter ahead, we remain committed to supporting the industry to manage any negative impacts from excessive promotional activity and will continue to work with our partners to optimize for full price sales. This means, for now, we are planning for lower promotional spend in Q4 year-on-year and we will be actively managing Q4 digital platform GMV growth to be between an estimated 40% to 45% over Q4 last year. We believe this will deliver digital platform order contribution margin of 35% to 37%. a significant improvement year over year. This result means we now expect digital platform GMV of over $2.7 billion for the full year of 2020, approximately 40% growth year on year, which is in line with 2019 and ahead of our initial expectations. The grand platform is anticipated to deliver Q4 GMV of $85 to $90 million which will result in brand platform GMV of $371 to $376 million for the full year, taking our group GMV in 2020 to an estimated $3 billion. These results will deliver favourable working capital movements within the quarter, increasing our underlying cash balance to an estimated $800 million by year-end. This balance will be further increased by the proceeds of the $600 million in total of new convertible notes to be issued to Alibaba and Richemont and $50 million in new shares to be issued to Artemis, which were announced last week. The $500 million investment related to the China joint venture is expected to complete in 2021. We therefore look to start 2021 with strong momentum, more than 5,000 committed far-fetchers, and a level of reserves that will ensure we can continue to support the global luxury industry in navigating the continued growth in online over the coming years. Jose.
spk07: Thank you, Elliot. Our Q3 results added this incredible momentum behind our business. as we've leveraged our platform to drive online adoption by luxury consumers worldwide. As a result, we've attracted in Q2 and Q3 a combined 900,000 new customers, and our data shows these cohorts are even stickier than cohorts acquired before COVID-19. Moreover, our survey of these customers revealed almost half of them plan to continue to do more of their shopping online. On top of this, we are driving accelerated adoption and record results while significantly reducing promotional activity. These dynamics are driving better supply as more and more of the most desirable brands choose our unique e-concession model. and we've seen similar strengths across our Farfetch platform solutions enterprise business, all of which is delivering improved unit economics and profitability, and positioning us to achieve adjusted EBITDA profitability for the first time in too far. An exciting milestone ahead of market expectations, putting us firmly on the path towards achieving our targeted full-year profitability in 2021. I'm excited to see the Farfetch platform drive the digital transformation of the luxury industry and the prospects of further leveraging our platform through the partnership with Alibaba and Richemont. As I said, I believe strongly that we have already entered a new paradigm for luxury. Not only a paradigm shift in consumer behavior, but also a paradigm shift in brand adoption. in an industry that is still very under-penetrated online. What we are seeing is the acceleration of the secular trend, from a very low online penetration in luxury, of 12% in 2019, to an estimated 30% penetration in 2025. And we are not only benefiting from this secular trend, but actively leading it. by enabling the industry to embrace our vision of luxury new retail. All of which, I believe, position us to drive strong sustainable growth, further market share capture, and the expansion of our leadership position in the years to come. Thank you. We'll now open the call up for your questions.
spk04: Ladies and gentlemen, in order to ask a question, you will need to press star and then one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from Douglas Henne with JP Morgan. Your line is open.
spk06: Great. Thanks for taking the questions. I have two. First, Jose, as you see the paradigm shift toward online luxury taking place, are you seeing any movement among some of the bigger luxury brands that have typically not sold online through the platform? Just curious what the potential is to bring them on over time now that you've seen this inflection. And then, Elliot, if you could provide a little bit more color on the 4Q guide just for digital GMB, the 40% to 45% growth relative to the 60% in 3Q. Is that all about kind of managing the growth with profit, or are there other factors we should be thinking about in 4Q? Thanks.
spk07: Thanks, guys. Yeah, I think it's very clear that brands are accelerating and fast-tracking their digital strategies. We have 550 brands on the FastEdge platform, as you can fashion. So we already have, if I'm not mistaken, all the brands from the Caring Group, or most of them, We have LVMH with several brands. Fendi, for example. Fendi is a new addition in Q2, where we are an exclusive multi-brand platform for them. And this last quarter, we ended signing more brands. We signed Moncler, which is a top 10 brand. We signed Ralph Lauren. We signed Dolce & Gabbana. and others. So I think, you know, we are strengthening the ties with the brands we already have. We're adding brands from other groups. Of course, the announcement we've done last week opens the door to conversations with Richemont. Richemont was a gap in our brand portfolio. We have so many things we can offer the maisons that are from the Richemont group, from marketplace, FPS, media solutions, China, start of the future, that we're excited about continuing conversations. But all in all, we're strengthening in a very, very salient way the fantastic relationships we already have with most of the industry. and signing new e-concession. So absolutely, you know, it gives a paradigm shift for brand adoption and brand adoption of the Syfetch unique e-concession model in particular. Thank you.
spk08: And Kai, just on our Q4 expectations. So, you know, we... We're focusing on the longer term here, as we always have been, really, in terms of managing growth. And 40% to 45% is market beating, in our belief, in terms of how we see the quarter pan out for online growth. It's also ahead of Q1 and Q2 this year. It's ahead of last year's numbers as well. And I think it will be an increase pretty much across the board in terms of market expectations. So, you know, I think we are continuing to focus on good, solid levels of growth, particularly setting ourselves up for, you know, next year and the year after that in terms of sustainable growth rates. What I will point out in terms of how we built that up, the stock value that we have on the platform today is the highest it's ever been at over $3 billion worth of product available through the third party and obviously our first party business, predominantly obviously third party. And that's coming through from a step up actually from brand partners. We're seeing, again, continued growth in terms of stock. and trade as well, the last quarter, further shift of GMV towards brand partners, and we're expecting that to continue. And the key thing, as Jose and I have been saying earlier on, is we want to help the industry to maximise full price during this period. We want to pull back again year on year on promotional spend, just as we did in Q3. um and you know i think that means uh as i say setting ourselves up for for longer term sustained growth But I think because we are doing that, we have to watch the promotional environment. I think we have to watch consumer sentiment, the continued impacts of the pandemic. I think winter will be a slightly different season in terms of what customers will do in terms of spend during the pandemic, whereas with the summer, people were still at least going out to grab fresh air and things like that. We were seeing purchases coming through. So I think we have to watch what this category will do And I think there will also be, as we've seen, a bit of category mix impact as well. So we're actively managing to these numbers for the benefit of all parties on the group. We're still seeing new customers coming through and retention, but I just don't think we want to go for a 60% growth rate when 40 to 45 is a much better place to be in terms of supporting all players on the platform.
spk04: Our next question is from Steven Ju with Credit Suisse. Your line is open.
spk03: Hi, Jose. So congratulations on the quarter as well as your new partnership in China. And so this is the second time we are thinking about the opportunity in China. So as you think about what happened before and what you want to see now with your new commercial partner, What do you think you will do that will be very different? And also, what do you think the addressable fashion shopper population in China can be? And Elliot, thanks for the LTV cap disclosure for the most recent cohorts. Stepping back a bit, I think the market found it very difficult to believe a little over a year ago when you acquired NGG that it will serve as a differentiated content-driven customer acquisition vehicle. But it seems like the high in-demand nature of the brand there is indeed helping to bring customers in. So any way to quantify the benefits that you are seeing in the demand acquisition cost there? Thank you.
spk07: Thanks, Stephen. I think we obviously consider China a very, very strategic market. As we updated in several learnings polls in the last few quarters, the JD star was taking more time to ramp up than what we expected. It wasn't... performing to the level that both companies expected. And we both tried to optimize it. And we started looking at data as well. So as we acquired Stadium Goods, we also acquired a Tmall store. Stadium Goods had a Tmall channel. So we could see the same skew exactly the same skew on Timo and the same skew on the JD Star via Farfetch, obviously, because Stadium Goods Assortment is also on Farfetch. And we could see the difference and it was quite a magnitude of difference. We also have data from our brands and we have data from the market. So it became evident to us that whilst both companies are fantastic e-commerce companies and incredible platforms and with full respect to JD and the team and with work incredibly hard on both sides to really maximize the channel, it wasn't really yielding and we saw the the the data what the data was clearly showing us both in our own direct experience and also what the brands were sharing with us so that that makes us very very confident um that um that the chemo platform um luxury pavilion in particular we're also going to open a star front uh in telex soho which is a new um new section of the site they have launched and also Timo Global for certain brands. They not only have 757 million customers, so considerably more than JD, they have the intent. They have the female customer, they have a fashion as one of their car categories, as we know, the car category at JD is electronics. So clearly we believe the intent is there. And also, you know, there is an incredible alignment of visions. When I met Daniel and he was talking about new retail and how Checkma in 2016 envisioned, really, the convergence of physical and digital retail, I checked and it was the same year, 2016, where we at the Parfait Show X outlined augmented retail, which was our our own name for that same strategy. We now combine the two names, and it's called Luxury New Retail, powered by Farfetch, and it's a global initiative. So we immediately saw we have an opportunity here, not just for China, but an opportunity globally to really leverage Alibaba's best in class, really. There's no other company in the world that has done it to the magnitude and extent they've done it. to really deliver this vision. So, you know, absolutely fantastic alignment in the global strategy and how we see the world. You know, the data shows the intent and the client base is a much better fit for us, quite frankly. And we also stretched the deal in a way that I think aligns incentives. You know, we are going to launch a joint venture where Alibaba and Richemont will own 25%. They can build up if certain milestones are hit to 49%. So that, I think, aligns interests operationally on the ground in a very, very strong way. So we're very, very confident. And of course, this will take time. We expect to to conclude the JV structuring in the first half of 2021 and then very relatively quickly after that launch the Alibaba storefronts, the Tmall storefronts, shall I say, and I think obviously it will have full impact in 2022 as we then start to optimize the channel etc. But we're very excited not just about the Shine opportunity per se, but also about the global opportunity that we have in hand.
spk08: And, Stephen, just on LTV CAC and NGG, the first-party original, there's absolutely no doubt in my mind that having the brands from the New Guards Group on the marketplace is driving down the engagement costs with customers. It's interesting that actually we've talked a lot about Off-White, but Palm Angels has absolutely rocketed up our list of brands over the last couple of months and is growing very, very rapidly within the Farfetch marketplace. I look at baskets that include an NGG brand and other brands. And the growth of those baskets year on year is in triple digits. So we're seeing this halo effect coming through by having original content on the platform and customers buying into the other brands. It's also allowing us to speak with real conviction around our editorial and the proposition to customers through the app, through our email campaigns, through the online editorial. And that is continuing to drive strong engagement with customers. When I look at the LTV over cash, and again, what I said earlier on around the Q2 cohort, that 500,000 customer cohort that we acquired three months ago now, if I go all the way back to 2017, there were only two quarters in that history, Q1-17 and Q3-17, that have had a higher three-month LTV over CAC than this quarter just gone. So all through last year, all through 2018, we've been, you know, we're now ahead of that in terms of this Q2 cohorts LTV over CAC. So it's a phenomenally powerful cohort. And it's not only the lower demand generation that, you know, Gareth and our team have been doing in terms of using data to really focus in on customers that are going to buy, reduce wastage in terms of bidding and retreating from markets that we don't want to, but his ability to shift away from paid search into lower cost channels, social media, the email and push notifications. But it's also on the promo side. So promo reducing significantly year on year has helped push up the lifetime value of this cohort as well. So everything is working perfectly for us to be able to engage with customers. And the good news is that means paid... share of GTV has dropped down this quarter year on year versus previous quarters where it's hovered at a pretty consistent level. So we've been able to drive more organic engagement as well on the back of all this work that we're doing to engage with customers. And of course, the relaunch of the Farfetch brand has also been instrumental in this. I think it's really resonated with our customer base and we're able to drive customers in a more organic way. Final point, and then I will pass to the next question. Referrals, GTV from referrals was up over 100% year on year. So our customers are also telling their friends and recommending via that referral feature to shop on Farfetch. And that's driving great engagement as well. So I think everything sets us up well for next year.
spk04: Our next question is from Floyd Wamsley with Deutsche Bank. Your line is open.
spk06: Thanks. I have two questions if I can. First, just on the new platform solutions websites launched in 2020 that contributed to GMP, can you just give us a sense for how much that contributed to the growth and kind of what the pipeline looks like for platform solutions? And then secondly, just as we think about Farfetch joining Luxury Pavilion and Do you think that may, you know, that combined with just the pandemic may hasten luxury brands to develop their own presence more on the platform since you're kind of effectively bringing them on there? And how do you think that there will be an interplay between, you know, your store on Luxury Pavilion versus like others having a presence there? How do you think about it? How should we think about it?
spk08: Lloyd, hi. I'll take the first question on FPS, and I'll let Jose take the question on China. So we're not going to break it out, unfortunately, so it's going to be a short answer to your question around the impact from the brand's on the growth rates, but the pipeline is looking good. The rest of this year is more focusing on further brands from the New Guards Group collection, but then we've got a very strong pipeline of third-party brands to launch starting in Q1 next year, but once we are closer to that, I'll give you a better update then.
spk07: Sure, I'll take the luxury pavilion question. We think it's very complimentary. So you have essentially two types of brands, let's say. Brands that already have a storefront on the luxury pavilion or plan to open one. And brands that, due to their scale, it's not easy to open a company in China. or even if you don't want to open a company to find a TP, produce specific inventory. Let's not forget that every product in Singular Shoe Pavilion is in China, has crossed the border, and is in a dedicated stock pool just for that channel. And that is done by a third party called TP, Timo Packard, that's the model. This model is very high cost in terms of OPEX, but very high risk as well, because obviously you have that stock linked to that channel. So what we do, and I think that's an incredible breakthrough for the industry, is bring the global offer from the 3,500 brands that are on the passage platform, 550 of them with e-concessions, to bring that global inventory to the Luxury Pavilion. What does that mean? It means that if you're a brand with a storefront on the Luxury Pavilion and you have, let's say, 100 SKUs, by the way, you will find that typically that's the number of SKUs that even the large brands have, so they don't have thousands of SKUs like they have on the coverage marketplace. So if you're one of those brands, you suddenly capture a much larger share of voice in that channel by being on Farfetch, on the luxury pavilion, as opposed to not doing that. And then you have very exciting medium-sized brands, small brands, even brands that are 100, 150 million, 200 million brands would find it relatively difficult to to set up e-commerce operations in China, and even to sell in the marketplace. So for those, it's a unique opportunity. It's one single integration, and your inventory is available all around the world, including in China on the PyFetch app, and now, including in the Luxury Pavilion, and of course, Tealux Soho, Teemo Global, in the future as well. So I think it's an incredible proposition. And this is what got us excited and what got Alibaba and the brands excited. Of course, this announcement comes with the endorsement of Richemont, comes with an increased shareholding from Arkenis, which shared this vision and also shared the luxury new retail global vision, which we feel very, very, very honored about.
spk04: Our next question is from Louise Singlers with Goldman Sachs. Your line is open.
spk01: Hi, good evening, Jodie and Elliot. Thanks for taking my questions. You must be absolutely delighted. It's great to see the path to EBITDA turning positive well in Q4. And just touching on a couple of those questions which have been asked already, I wondered if you could just elaborate a bit more on that balance. Elliot, you alluded to this in terms of obviously managing growth and the profitability for the platform. But obviously, I think you'd be very much forgiven for spending a bit more to drive even more for the fourth quarter and pace of the growth. But I suppose the question is that you've only got 2.7 billion customers today. Is there a turning point that's happening for the platform in terms of customer engagement beyond the actual active user numbers? I say that in the brand awareness of Farfetch, because I think the 2.7 million across three regions is still quite a low number. And then secondly, related to that, I wondered if you would help us think about the regional growth. I know that's not explicit in terms of the detail, but if you could give us a rank, particularly interested in the China number following details from last week. Then lastly, I wondered if you could just talk about, Jodie, obviously the benefits of getting some of the brands now direct. Obviously, Moncler has been, Moncler product has been available on the platform for some time, but the benefits of having the direct relationships and what that means in terms of inventory and driving traffic. Thank you.
spk08: Hi, Louise. Good speaking to you and very good questions as always. Thank you for that. I think Q4, with the momentum that we've got behind us and the amazing... work that the team has been doing to deliver scale and leverage you know if you think about our technology platform uh this quarter eight percent of adjusted revenue uh that's driving significant scale and leverage year on year um you know we're able to get to profitability on 40 to 45 percent growth next quarter um if it was higher growth I would see that flow through to potentially more profitability rather than us sort of cutting back on growth rates to try and get to profitability. It's not about that at all, really. It's about balancing what we think is the right growth for the platform and our suppliers on the platform over this quarter, which I think will be more promotionally heavy, not by us, but by the market. And would we want to spend on promotions just to attract customers that were wanting to buy into promotion to deliver a faster growth rate? Probably not, because the history of the customers that initially buy with us on promotion shows that they're not the strongest cohorts in terms of lifetime value over the long run. And we've been down the path before where we kept spending on promotion because we wanted to make sure we didn't miss a single customer that was visiting us. Well, that didn't work out in terms of great LTP. What does work out is the digital marketing team focusing on you know, a customer group that is going to be with us for the longer term, and we've seen that over the last couple of quarters. Lower promotions means, you know, higher LTV in the short term, and we believe over the longer term. So although I do agree with you, 2.7 million active consumers in this market is... a number that leaves us with significant opportunity from here on in. Is it right to pull the promo handle in the next 13 weeks or now next sort of six to eight weeks? uh just to acquire them now when they're going to be promo customers i don't think so i think it's better to embed everything we're doing in terms of engagement the brand work to build a client base that's really strong over the coming quarters and as i said earlier on you know a sustainable level of growth which you know 40 to 45 is is pretty good in my view in terms of what we're now expecting So it's really more about the customer cohort that would be shopping with us if we were to change anything there. In terms of your regional demand question, again, we don't break this out too much, but I would say that we saw all three of our regions accelerate growth. So from Q2 into Q3, all three regions stepped up in terms of year-on-year growth rate. Actually, the Americas stepped up more than any other market or any other region, and that was coming through, again, by the focus from the team into Mexico. The US was particularly strong in terms of year-on-year growth. Q3 versus Q2. You remember last time we spoke, I said the US had sort of woken up towards the back of Q2 and was driving growth in the early parts of Q3. That delivered a fantastic acceleration. And as I say, all other markets accelerated. China in a very good place, particularly mainland China. We are still seeing challenges in Hong Kong in terms of growth. But mainland China is doing well. And then lastly, Middle East, very strong year on year. UK, very strong year on year. So I think, you know, we've got a broad base of customers from across all three regions.
spk07: And Luis, I'll take the question on Montclair and what changes. I think, you know... First of all, Moncler is one of our top 10 brands, even just with the wholesale channel. So it's very, very exciting to see this brand. It's one of the very few brands in our top 20 brands that was not direct. I think we have maybe another one. So that's an excellent record from our commercial team. And I think, you know, what is open, well, first of all, You know, as you know, brands have, and Moncler has outlined their digital strategy and has been clear also on how they want to divest from wholesale and double down on direct-to-consumer. And this is an example of exactly that. So they're doubling down on direct-to-consumer channels with their e-concession on Farfetch. So that means the direct presence of brands on the platform becomes more and more important as the brands divest from wholesale. Important to note that all our competitors are wholesale businesses, right? So FastHash is the only global online luxury destination at scale that operates an e-concession model. You know, the number two, number three, number four, number ten player is essentially a wholesale account for these brands, which means what we expect to see is our competitors with less and less access to supply. And obviously, we continue to be able to grow in depth with these brands, since they're prioritizing our channel. But that's not the end of it. I think the most exciting bit is We start to develop a different quality of partnership, right? So what we see when we find these brands is we start to do exclusives, we start to be the partner of choice for new products, for new launches. um they start to see the incredible power of uh of the platform in terms of reaching um the millennial customer globally uh we have um i can point you to some examples so this year we launched the gucci off the grid capsule um you know uh uh before then we uh we did um uh a global event with balenciaga including the first strength show in China, a physical trunk show in China with Balenciaga and our VIP customer base. All of these things are very exciting and they only come, obviously, when you have direct relationships with the brands in the shape of e-confessions. And what you see is they start then prioritizing us over other multi-brand online channels. not just because they have double the margin, let's say, let's put it in, certainly double the revenue and give or take double the margin, but also it's a direct-to-consumer relationship. They get much more granularity in terms of the data. They have full control of pricing and merchandising. So there's many advantages beyond the depth of stock, but obviously the depth of stock, as we continue this growth of this, you know, 60% base in Q3, 40% to 45% in Q4. It's essential that we have, like, a bottomless, you know, access to inventory in the years to come, two, three, four, five years, if we start to extrapolate with these numbers. Having these reconcessions is really important for us.
spk04: We have time for one more question. The final question comes from Eric Sheridan with UBS. Your line is open.
spk05: Thank you for taking the question. I'd love to ask a two-parter directed at each of you. With the capitalization you're going to have at the end of this year and then raising the capital you're doing on the back of the transaction with Alibaba, how should we think, and maybe for you, Jose, strategically, and Elliot, for you sort of financially as part of some of the investments you want to make, broadly about deploying that capital how should investors think about what sort of the priorities are for deploying that capital against your growth objectives and driving equity returns thanks so much ellis you want to take the question you're the treasury man yeah absolutely sorry i was um
spk08: Just on mute, that classic answer to any question over the last six months. Yeah, I think, Eric, as you point out, we're extremely well capitalised, $757 million at the end of the... quarter and that should get up to $800 million by the end of the year due to working capital. And the transaction last week wasn't about boosting the balance sheet, it wasn't about raising money, it was about making sure we've got meaningful alignment between ourselves and the strategic partners and the cash is the output of that focus really. I do think the investment means we've got very aligned interests in China and the global business, and we look forward to working with both partners. The cash, as it stands at the moment, has got no specific purpose other than continuing to invest behind the great results we're seeing on the platform as we help the whole industry navigate the shift online. We won't be doing anything other than focusing on our strategy of evolving the business to support the growth online. 12% market share now, moving to 30% in the next five years. Farfetch is going to lead the way with that, and the funds that we have will be used to ensure we're taking advantage of any opportunities to drive good return for investors over that time period. I don't think it's an excessive amount of cash to have. I think it's a good level of reserves for us to be able to deploy as we need to. But it doesn't take our eye off the ball of continuing to drive growth, focus on unit economics, profitability for the full year next year. And if anything else comes along, we'll see what happens. But at this stage, we'll be putting it straight into good investment in the bank. I think that's probably it, unfortunately. Time is up. We look forward to speaking to you again in three months' time. And Alice and Deanna are available, of course, as always, if you have any more questions for the Investor Relations team. Thanks, everyone, and speak to you in February.
spk04: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.
Disclaimer