Will Farfetch Become Profitable in 2021?

What happened As the world frets over the COVID-19 pandemic, and whispers that it may cause a global recession, luxury e-tailer Farfetch remains well positioned, stating that they are not affected like almost every other player in the luxury retail space. Founded in 2007, Farfetch went public in the summer of 2018, and then went on a shopping spree in 2019 to add to its reach and growth, though it still hasn’t reached profitability. However, during its recent quarterly and annual earnings call, Farfetch’s CFO Elliot Jordan said it’s positioned to do so in 2021. The e-commerce platform currently delivers goods — from luxury brands like Gucci to streetwear giants Golden Goose and Off-White (which it owns) — to customers in 190 countries, bringing its annual Gross Merchandise Value (GMV) to over $2 billion last fiscal year. According to its recent financial results for the fourth quarter and full-year ending December 31, 2019, which was released aftermarket last Thursday, Farfetch’s annual revenue increased up by 69% to over $1 billion, while gross profit grew by 54% from $298 million to $460 million. The company's recent performance beat analysts expectations, Marketwatch said, and its shares grew 5% as a result on the same day. “We grew our digital platform almost twice as fast as the online luxury industry, and significantly improved our adjusted EBITDA margins as we marched towards profitability,” founder and CEO José Neves said. “As we move into 2020, we remain uniquely positioned to capture the lion’s share of the $100 billion incremental opportunity in online luxury.” To date, Farfetch hasn’t been affected by the global Covid-19 pandemic, thanks to its resilient distribution platform model. The model “affords us with more than $3 billion of third-party inventory across more than 50 countries,” Neves said. As for 2020, the e-tailer’s CFO Elliot Jordan added, “Looking towards 2020, we are well positioned to continue to gain market share…and aim to balance our growth initiatives with continued investments in the business in driving towards profitability in 2021.” The Jing Take Even before Tencent’s investment in Farfetch last month, which gave the e-tailer an additional $125 million, as well as access to its network of local resources, Farfetch has already done everything right in China — from buying off JD.com’s TopLife, which gave it a boost in logistics within the country, to launching a Private Client Program to anchor China’s growing KOCs. The company’s stance on the China market is also pioneering. According to Giorgio Belloli, the company’s chief commercial and sustainability officer, Farfetch isn’t bound by the national border. “Chinese consumers are shopping globally. So for a business like ours, we’re increasingly looking at the Chinese consumer, rather than China as a market,” Belloli told Jing Daily in a recent interview. Farfetch investors were worried that the e-commerce retailer lost some focus with last year’s shopping spree, during which it added the New Guards Group (licensee of Off-White and since January, Opening Ceremony), the premier sneaker and streetwear marketplace, Stadium Goods, in addition to the luxury portal TopLife. The results are mixed thus far: New Guards’ brands contributed 13.7% of Farfetch’s fourth quarterly GMV, over the five months after the August 2019 acquisition, according to Jing Daily’s calculation. Moreover, Stadium Goods has boosted the supply of goods for Farfetch, but its average order values have hurt the total GMV growth, according to the earnings report. The purchase of New Guards and Stadium Goods added to Farfetch’s general expenses, which went up by $63.6 million, or 112.2%, in the latest quarter compared to 2018. While the increase in expenditure might be anticipated in the short-term, investors should expect a more substantial return from these teams going forward. Although Farfetch is currently well positioned to weather the COVID-19 crisis, how and where they continue to spend in 2020 remains unclear, though their CFO hinted, in the earnings call, that Farfetch would pursue “continued investments” without disclosing further details. The Jing Take reports on a leading piece of news while presenting our editorial team’s analysis of its key implications for the luxury industry. In this recurring column, we analyze everything from product drops and mergers to heated debates that sprout up on Chinese social media.

Sectors

Insights

Company

Will Farfetch Become Profitable in 2021?