Farfetch sales surge, losses narrow in Q4, 2019 starts well
Farfetch just can’t seem to stay out of the headlines at the moment and fresh from announcing a major luxury e-tail partnership with JD.com and another with Harrods this week, its first set of annual results since its mega IPO were released late on Thursday.
Although still loss-making, it said it generated record gross merchandise value (GMV) of $1.4 billion in 2018 (up 56%) and $466 million in Q4 alone (up 51%). Those figures exceeded its own expectations and it continued to capture market share with the full-year growth rate being double that of the overall online industry.
Of course, GMV is the total value of the goods sold on its site and not all of that flows back to the company as revenue. But the revenue that did reach Farfetch also rose strongly. Full-year revenue rose 56% and in Q4 it was 55% higher. The last quarter also saw a 45% increase in active customers and 58% rise in the number of orders.
“By all measures, 2018 was a blockbuster year for Farfetch,” said founder and CEO José Neves. "We continued to lead the online personal luxury goods market [and] also exited our first decade as a company with an incredible foundation for realising our platform vision globally, including in China, with the announced acquisition of [JD.com's] Toplife solidifying Farfetch as the premier luxury gateway to China.”
He added that "over the next 10 years, the luxury industry is expected to grow to an estimated $500 billion, and online sales will potentially grow to represent an incremental $100 billion opportunity. Farfetch is uniquely positioned to capture the lion's share of this opportunity.”
Looking more closely at the figures for the full year and last quarter shows just how much extra money customers globally spent through the site last year. That 2018 GMV figure of $1.4 billion quoted earlier was up from $909 million in 2017, and revenue was up to $602 million from $386 million. For the quarter, the GMV figure of $466 million was up from $310 million a year earlier as revenue rose to $195 million from $126 million.
But, as mentioned, the firm is still making a loss and major expenses (including expansion investment and the cost of its giant IPO) continue to eat into the bottom line.
Its adjusted earnings before interest, tax, depreciation and amortisation (ebitda) was a loss of $95.9 million in 2018, wider than the prior year’s $58 million but in Q4, its ebitda loss actually narrowed to $14.5 million from $23.4 million a year earlier. Its annual after-tax loss was $155.5 million (wider than the prior year’s $112.2 million) while the loss for the quarter was $9.9 million (better than Q4 2017’s $54.8 million).
But although the loss narrowed at the end of the year, its gross profit margin decreased from 51.2% in Q4 2017 to 48.2% this time, primarily due to “lower fulfilment revenue per order, on average, as Marketplace cost efficiencies were offset by investments in customer initiatives, including our loyalty program.” Additional factors impacting gross profit margin included “an increased mix of first-party sales," which have “a different gross margin profile” than its third-party business, and “the impact of retail pricing, particularly on first-party gross margin.”
There didn’t appear to be anything unduly worrying about that though and the firm’s shares rebounded almost 4% in after-hours trading as the growth story seemed to be intact. That rebound, which built on the share price rise seen earlier this week after the firm’s Harrods deal was announced, helped propel Neves back into the billionaire club he had temporarily joined after the firm’s IPO.
The post-IPO share price fall had dented his wealth (on paper at least), but even if his renewed billionaire status slips away again, it looks likely to be back at some point this year as strong growth seems set to continue at the firm.
The company said that all three geographic regions – Americas, EMEA and APAC – exceeded 50% GMV growth in 2018 and it expects more of the same this year. Based on the performance of the Marketplace so far in Q1, platform GMV is expected to grow around 40% year-on-year in 2019.
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