Net loss soars at Farfetch, but it hails sales surge and key EBITDA milestone
Like many other online fashion retailers, Farfetch saw soaring demand last year and said on Thursday that its 2020 gross merchandise value topped $3 billion, up 49% year-on-year. Meanwhile revenue rose 64% to $1.7 billion.
But given that we’ve heard a lot about 2020’s quarters one-through-three in previous results reports, Q4 was the big story of the day. And the so-called Golden Quarter was undeniably strong, despite pandemic challenges. It saw GMV and Digital Platform GMV growth of 43% and 49% respectively, to hit record highs of $1.1 billion and $939 million. Farfetch’s Q4 revenue rose 41% to $540 million and the margin improved 310 bps to 35%.
But the company is no longer just an e-tailer and the firm’s in-store revenue is getting bigger. It increased by 39.6% to $13.7 million in Q4, even at a time when lockdown store closures were a feature of the retail landscape. This rise was primarily driven by the opening of New Guards stores throughout the year, partially offset by those store closures and reduced foot traffic across the retail store network due to Covid-19 restrictions.
That’s most of the good news dealt with. But there’s no getting away from the fact that the firm remains loss-making for now and the Q4 net loss was huge at almost $2.3 billion after a loss of 'only' $110 million a year ago. But the latest much wider loss included a $2.1 billion “non-cash impact of [the] higher share price on items held at fair value and re-measurements”.
And on a much brighter note, that loss came alongside an important milestone -- its first-ever quarter of positive adjusted EBITDA. It swung to a profit on that basis of $10 million, reversing the $18 million loss of a year ago.
UPS AND DOWNS
So clearly a mixed picture for now, although in the tech sector (which Farfetch inhabits as much as the fashion retail sector), years of sacrificing profits in order to build market share and scale are commonplace. Just look at Amazon’s early history.
But that doesn’t stop investors from getting impatient and Farfetch’s shares fell on Thursday, both before the results were announced and in after-hours trading once the Q4 news was out. Yet the shares are still changing hands a higher prices this year than for its entire time as a listed business, apart from several days in recent months.
Farfetch, founder, chairman and CEO José Neves was upbeat about the results, saying the company “cemented our leadership as the largest global online destination for luxury fashion… and demonstrated the scale and attractiveness of our business model”.
He added that in early 2021, “I am more energised than ever by the prospects of leveraging our incredible achievements to date and our unique platform capabilities to go after the significant growth opportunities we see in our vision to be a digital enabler connecting the creators, curators and consumers of the global luxury industry, both online and offline”.
And CFO Elliot Jordan said that the strong Q4 figures and the full-year numbers, “exceeded our own initial expectations”.
Apart from reaching a powerful revenue figure, the company managed to tick off some other major achievements in the past few months. It said third-party transactions generated 84% of Digital Platform GMV and over 1,350 total Farfetch Marketplace sellers offered a record number of stock units across more than 3,500 brands.
It also signed a key new seller, Russian luxury group Bosco di Ciliegi, owner of 40+ monobrand and four department stores, including the famous Gum.
And it drove strong momentum in newer categories in 2020 as a whole as watches and jewellery grew nearly three times as fast as the Farfetch Marketplace.
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