Earnings Call: Q3 2018

Nov 8, 2018

Good afternoon. My name is Jason, and I will be your conference operator today. At this time, I would like to welcome everyone to the Farfetch Third Quarter 2018 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. I'd now like to turn the call over to Alice Ryder, VP of Investor Relations. Ms. Ryder, you may begin your conference. Thank you, Jason. Hello, and welcome to Farfetch's Q3 2018 conference call. Joining me today to discuss our results are Jose Neves, our Founder, Co Chairman and Chief Executive Officer and Elliot Jordan, our Chief Financial Officer. Before we begin, we'd 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 these statements. For a discussion of some of the risk factors that could cause actual results to differ, please see the Risk Factors section of our final prospectus in connection with our initial public offering, which was filed with the SEC on September 24, 2018. 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 atfarfetchinvestors.com. And now, I'd like to turn the call over to Jose. Thank you, Alice. It's great to be with you today. Thank you for joining our first earnings call. Let me start by thanking all our employees, our Farfetch's and our brand and boutique partners and our highly valued customers for all their support over the past 10 years since Farfetch began in 2008 and throughout our IPO. During the IPO, we had the opportunity to share our vision and the Farfetch story with investors from all around the world, and we received such an incredible reception. We're now more excited than ever about Farfetch's opportunity to be the platform for the luxury industry. Before I update you on our 3rd quarter progress, since today is our 1st earnings call, I would like to give you a bit of background on Farfetch. But before I do that, I want to set out the scale of the opportunity in the luxury fashion industry. We believe we have such an amazing opportunity to transform what is currently a $300,000,000,000 global industry, where e commerce is still in the early stages of development. In 10 years' time, we believe this industry will be worth $500,000,000,000 and online will be at least 25% of that, maybe 30%. This would represent a full incremental opportunity of $100,000,000,000 in new business. And we believe Farfetch is well positioned to take the lion's share of that total addressable market. Farfetch was founded based on my love of the fashion industry and of technology. I started my career developing software for the fashion industry and being from the north part of Portugal, I've been around the industry my whole life. I cut my teeth as a fashion entrepreneur in the 90s early 2000s as a designer and as a boutique owner in parallel with my original software business. And this experience brought a lot of learnings on how the industry works and the challenges it faces. Back in 2007, I saw that the Internet was going to permanently change the industry as it has changed every other industry. And that fashion has only just begun embracing the channel. I could see a transformation coming in terms of how consumers discover fashion and how transactions would take place. What was also striking was that there was no marketplace or platform for this very resilient industry. To me, this was and is a huge opportunity as this is an industry which lends itself perfectly to marketplace dynamics. On the supply side, the market is very fragmented with thousands of designers and the long tail of supply. Even the biggest labels actually represent a low single digit share of the market. On the demand side, there are luxury fashion lovers all around the world, literally from Tokyo to LA. They want to be connected to the greatest fashion the world has to offer. And this is what Farfetch has built, a platform connecting the creators, the curators and the consumers of fashion globally. We began establishing relationships with the best brands and retailers in the industry and launched our marketplace in 2,008. Today, Farfetch remains the only truly global marketplace for luxury at scale, which has enviable relationships in the industry. Both Chanel and Kering are investors in the company and we now have more than 1,000 direct brands and boutiques supplying luxury items to our 1,200,000 active customers around the world. We have built an unrivaled inspiring destination for the world of luxury, and we are the innovation partner trusted by the most prestigious brands in luxury to preserve the brand relations the brand reputations that they have built over generations. Our platform is purpose built to connect the world's luxury fashion ecosystem. We control all aspects of the end to end process of transaction, operate global logistics at scale and deliver a consistent luxury experience. The Farfetch marketplace is the largest component of our platform and the main way we monetize our business today. For consumers, we offer the broadest and deepest selection of luxury fashion online in a delightful and beautiful experience. And for sellers, we offer unprecedented access to high intent consumers, a global logistics network and the full suite of services ranging from photography to high quality customer service that a luxury consumer would expect. We are the only platform with the technology and the relationships to power this massive industry. A key differentiator of Farfetch is the self reinforcing network effect of our marketplace. The more brands, boutiques and department stores we have on our marketplace, the more consumers turn to us, which in turn generates increased sales for our sellers, attracting additional sellers and supply points to the platform and so on. This is a powerful flywheel that we believe will enable us to be the cash flow leader in a winner takes most market over the long term. Our vision is to be the platform for the $300,000,000,000 global luxury market, which largely has been left behind as the rest of the world has transitioned online. Millennials and Generation Z are becoming increasingly important luxury consumers, starting the industry to accommodate new demands of a digital first or digital only generation. These dynamics combined with the growth of luxury consumption in China, Middle East and other emerging markets create a compelling opportunity that we are uniquely positioned to capitalize on. Over the course of a decade, we have invested in our technology, built strong relationships and successfully established ourselves in an industry notoriously difficult to occupy. And as a result, we believe we have solved the paradox of modernizing the luxury fashion industry. The way I see it, Farfetch has completed its 1st decade. And this was chapter 1. We have built an incredible foundation, but this is just the beginning. Chapter 2 started the day of our IPO, a turning of pages for our company to even more exciting opportunities. We believe Farfetch is still early in its investment cycle. The industry still has very low online penetration at 9 percent as of 2017 and we see opportunities everywhere to transform the way luxury works and to build tremendous value. To take the lion's share of the online portion of an industry that we believe over the next decade will grow to be worth more than $500,000,000,000 we will continue to invest in sustainable growth as a priority over short term profitability. While we capture market share, we will carry on demonstrating discipline in our demand generation costs and leverage our fixed cost base. But where we see opportunities for further growth leading to increased longer term profitability, we will invest in technology and in our brands. Our Q3 results reflect precisely this strategy. I'll now cover our Q3 highlights. So starting with some financial highlights for the quarter. We have successfully executed our IPO. Following strong demand from some of the world's best long term investors, we increased our IPO price to $20 per share and expanded the primary issue, resulting in $305,000,000 in incremental cash raised for the business. The IPO was obviously a milestone achievement for the whole company and I am proud of the whole Farfetch team for staying focused on execution to deliver strong results. The Monday after the IPO, I was very pleased to see everyone was back at their desks focused on the opportunity ahead of us. Elliot will share further details on the financials, but I just want to draw your attention to some key highlights. Our group gross merchandise value or GMV was $310,000,000 for the quarter, driven by platform GMV growth of 53% year on year, which is about twice as fast as the growth of the online luxury market. We generated $1,250,000,000 in GMP over the last 12 months and our performance was broad based. All three of our geographic regions, Americas, EMEA and APAC, have had the best Q3 ever in terms of GMP. Active consumers were up 42% with number of orders up 55% year on year. Q3 2018 Platform Services revenue was up 61%. We remain focused on GMV growth and achieving this in a disciplined manner. Platform contribution margin increased 82 basis points to 40.8% in Q3 compared to 40% in the same quarter last year. Now I'd like to move on to highlights in terms of growing and developing our Over the last quarter, we expanded brands and boutique relationships for breadth and depth of supply, signing a number of new direct brands, including Moschino, Victoria Beckham and Tory Burch. We also added boutiques in new countries, Russia and Estonia and maintained our strong retention rates of our brands and boutiques. In terms of the categories we cover, Q3 saw a number of exciting developments. In fine jewelry, a category we launched in Q2, we saw the view of our collaboration with other Street Market, one of the world's most renowned luxury retailers with 6 global locations. Together, we launched a spectacular section specifically for fine jewelry, adding an exciting roster of designers and creating beautiful editorial content to celebrate the launch. Another category we are particularly excited by is luxury streetwear, where we see strong demand and where we believe Farfetch is clearly leading in terms of selection. For example, we did an exclusive capsule with Browns and North White. And earlier this year, we added Stadium Goods, one of the world's leading destinations for red sneakers and limited edition drops as a seller on the marketplace. And finally for supply, we successfully went live with our first department store, the iconic Harvey Nichols, which was founded in 18/31. And we maintain active conversations with several others. Now turning to some developments from our business to business applications. Farfetch Black and White Solutions launched 2 new brands, Roberto Cavalli and New Barretz, on its white label In July, we agreed to acquire Curiosity China, a digital technology company with best in class social CRM and digital marketing solutions to provide a plug and play suite of services aimed at helping brands expand in China via web, app, WeChat store and mini programs. In terms of logistics, we are delighted with the launch of Fulfillment by Farfetch. Fulfillment by Farfetch is a service whereby brands of large or large retailers can ship their products to work on consignment with Farfetch handling global logistics from third party warehouses managed by the Farfetch platform. In China, we've launched fulfillment by Farfetch as part of our partnership with JD Logistics. Brands now using the service include Saint Laurent. The service is fully operational and ready to scale. This is in addition to fulfillment by Farfetch facilities in New Jersey, London and very soon in Italy. Q3 also saw a number of highlights in terms of products and services for our customers. Starting on the product side, we are extremely excited by 2 new mobile developments. In China, we have launched a new iOS app, which is now completely developed by our team of Chinese engineers and product managers and fully integrated into the platform via our API. The new China app shows double digit improvement in conversion rate as of the previous version, which was the global app translated in Chinese. Having a local Chinese app also allows us to now roll out new updates for our Chinese customers much faster. Globally, we have also revamped our iOS app with a fresh new design and exciting features, including visual search where users can now snap a picture or capture an image from Instagram and find the item or similar on Farfetch. As part of our VIP service, we continue to develop the Fashion Concierge Conversational Commerce Unit. This business generated some of Farfetch's highest value sales. A watch was sold for $147,000 a a necklace set for $150,000 as well as a multi item, multi brand order for $150,000 using Fashion Concierge. The majority of these items were brands offline exclusives and not available on farfetch.com or other online luxury websites, which gives our VIPs a differentiated service. On the technology infrastructure front, we are now a fully geo distributed platform with our China data center handling 100 percent of China traffic, making the experience for our customers much faster. We now have 3 global data centers in the cloud, which are linked and operate on top of 1 single data platform and API, which means they provide a superfast experience to global users, but also state of the art disaster recovery and reliability for the Farfetch global platform. We believe these capabilities are absolutely world class and very hard to replicate. Now turning to our platform vision. We continue to be committed to relentless innovation. As we believe the industry has a myriad of significant inefficiencies that can be solved by technology, and we continue to see exciting developments here. Farfetch Star of the Future is progressing well, with the first Chanel star expected to launch in 2019. Ongoing developments of Star of the Future Browns also continue as planned. Dreamer Family, Farfetch's early stage technology accelerator launched in September and the feedback from our first cohort of 10 startups selected from 150 candidates from around the world is phenomenal. We are very excited about these start ups. We selected to cover areas where we think there is huge potential for industry wide transformation such as Blockchain as an enabler of authentication in luxury, sustainability with a focus on the circular economy and 3 d Avatar technology applied to online luxury fashion to answer the 2 Holy Grail consumer questions. Will it fit me? And will it look good on me? None of these achievements could have happened without our incredible Farfetch's. Our team of almost 3,200 people in 13 offices around the world continue to focus on innovation and building our company. With this in mind and with our growing workforce, we have committed to expanding our London headquarters to enable future growth of the business, effectively doubling our space in London. As you can see, we achieved a lot in Q3. And now I would like to hand over to Elliot to discuss the financial results and guidance in detail. Thank you, Jose, and hello, everyone. I'm delighted to present to you the 2018 Q3 earnings for the Farfetch Group. As Jose has been reflecting the reflecting the strong momentum in platform GMV, which increased 53% over the same time period to $306,000,000 I'm particularly pleased by this performance as we are comping against a Q3 growth rate from last year of 60%. Our 3rd party marketplace continues to drive over 90% of our platform GMV. We provide an end to end technology and fulfillment solution and act as a selling agent for over 1,000 direct brand and boutique partners. We charge a commission on platform GMV generated as a result, and we have seen strong performance from these partners over Q3 with sales and therefore GMV growth at around 50% year on year. Overall, we have seen very good growth in the breadth and depth of supply uploaded to the platform from our broad mix of partners. With stock value on the Farfetch marketplace for autumnwinter2018 of $2,700,000,000 atquarterend. Black and White, our white label business grew faster than the marketplace with 5 new clients year to date. The sales traded on these websites drives our other platform GMV. In addition, we have also delivered remarkable growth on the platform from our first party business, where we continue to leverage our unique customer and fashion data capabilities to help select product lines that have appealed to our younger millennial audience. We have also successfully partnered with designers to create unique capsule collections. During the Q3, these sales grew at about 3 times the platform average from a small base. Focusing on the demand side of the marketplace, we have seen strong loyalty from existing customers. Growth in active customers to 1,200,000 plus an increase in the frequency of orders per customer, leading to overall growth in orders of 55% year on year. We did see a slight year on year decline in reported average order value to $5.85 This was mostly driven by a stronger U. S. Dollar in Q3 2018 versus Q3 2017, which we estimate resulted in a 3% translation impact from non U. S. Dollar baskets on our overall AOV. Another contributing factor to year on year AOV is the increased up take in loyal customers benefiting from our free shipping offer, which reduced the fulfillment GMV component of the basket. Taking these into account, underlying AOV is broadly in line with last year. Reported revenue grew 52% year on year to 132,000,000 dollars Stripping out fulfillment revenue and Browns in store revenue, our platform services revenue, which is the same as what we previously called adjusted platform revenue, grew 61% year on year, driven by our 3rd party commission income and growing mix of 1P sales, 100% of which drops through to revenue. As expected, 3rd party take rate declined from 32.4% in Q2 to 31.9% in Q3. We have signed some very strategic larger supply partners over the last year, which has substantially increased our product offering. The take rate declined quarter on quarter is the result of a mix shift towards these lower commission suppliers. Offsetting this mix effect is improving underlying commission levels across the seller base, where we have been renewing our partnership agreements at commission rates that reflect the increasing value added services we provide on the platform. Turning now to platform order contribution margin, our key indicator of variable profitability. This measure increased 82 bps year on year to 40.8 percent of platform services revenue as our platform contribution increased 6% on a per order basis over the same time period. Growing scale is helping us to drive efficiencies across our order fulfillment costs, lowering the cost of shipping and logistics per order year on year. Our approach has been to reinvest these benefits back into our customer offering. As I mentioned earlier, we have put more weight behind our free shipping offer, which has driven strong retention from our most loyal and valuable customers. This improved retention has a positive impact to order contribution margin due to the lower demand generation costs associated with loyal customers compared to new customers. We have also delivered efficiencies within our demand generation spend by leveraging our unique data capabilities to find prospects that are highly engaged in the luxury category. This allows us to use a broad mix of channels to target and engage with our customers and to continue to improve returns from high cost online channels. Overall, we have reduced demand generation expense from 25% to 21% of platform services revenue year on year. Moving to our other expense lines. Our technology spend has increased year on year to 17% of adjusted revenue as we have grown our technology staff headcount by 68% versus last year as well as invested in additional software and infrastructure to support the continued growth of the business. As Jose mentioned, the tech teams have rolled out an extensive list of new developments across the quarter, both with the consumer focus such as our new visual search, new product pages, refreshed iOS app and guest checkout, as well as for our suppliers, of course, like our enhanced price setting tool to enable price by size, which is essential for childrenswear and streamline functionality for global price setting. We now operate 3 globally distributed cloud based data centers, which seamlessly support the growing volumes transacted across our platform. And as Jose mentioned, we have one live in Shanghai to support our Chinese consumers. The year on year growth in tech expense also reflects all the work done to support an elevated level of compliance, including, but not limited to, GDPR, which went live across the first half of the year. Within G and A, which includes our people, our platform services, brand and corporate costs, we have delivered operational leverage year on year from 58% to 53% of adjusted revenue, reflecting further efficiencies from our cost base. Whilst we continue to invest in our talented team and infrastructure to support our platform services revenue, we have delivered efficiencies within our production, account management, customer service and 1P buying and merchandising teams. In terms of investment, Jose mentioned our additional office space in London, and we have also increased our capacity with existing third party logistics providers to support the growing fulfillment by Farfetch opportunity. The strong revenue growth, improving order contribution, fixed cost leverage and investment in technology has resulted in an adjusted EBITDA loss of $32,000,000 in Q3 2018 with margin in line with the same period last year. This is in line with our financial strategy and reflects our continued investment into the growth opportunities we see for the business. Of note, the low adjusted EBITDA is our share based payment charge of $38,000,000 and depreciation and amortization charge of $6,000,000 The share based payment reflects the quarterly charge of our annual stock based compensation plan, but also the need to revalue our expected liability for employer taxes and amounts due on the cash settled positions on the back of the quarter end share price. The liability for our legacy cash settled employee options will be mark to market to our share price movements each quarter over the next 24 months. Depreciation and amortization reflects the step up in capitalized development costs in prior periods. Looking ahead to Q4, which has started well, with good growth throughout October. However, our quarter is heavily dependent on the next 7 weeks with the critical holiday trading period still ahead of us. Whilst this period is always very competitive, with this year being no exception, we have a very strong customer offering and expect a good response from our luxury consumers as a result. Taking all of that into consideration, we now expect platform GMV of $435,000,000 to $445,000,000 which is growth of 42% to 45% year on year with platform services revenues growing a couple of percentage points faster on the stronger 1P mix year on year. We continue to expect strong order growth and whilst Q4 order values will increase from the Q3 position as the higher priced winter season is now in full force, think winter coats and cocktail dresses over board shorts and yacht wear, we expect the stronger U. S. Dollar position year on year will continue to create a slight negative translation effect in the AOV position compared to Q4 2017. Turning to our expected EBITDA position. I would like to reiterate what Jose said that we are at the early stage of the investment cycle. With significant channel shift underway within the industry and further online market share to capture, plus strong indications of success in terms of growth, strong unit economics and fixed cost leverage, it should come as no surprise to you that we will continue to focus on investing in the business to further strengthen our superior positioning in the industry. As such, whilst we now expect Q4 GMV and revenue growth to be higher relative to our prior expectations, we are not expecting an incremental change to our adjusted EBITDA estimate for Q4. With that said, I look forward to speaking to you all in the New Year. Jose? Thanks, Javier. A few weeks ago, we celebrated our 10 year anniversary. Looking back over the 1st 10 years of what I call Chapter 1, I am extremely proud of what our team has accomplished. From day 1, Farfetch has had a global approach in building an end to end infrastructure to serve our customers who span 190 countries, while we also acted locally and have now set up 13 offices to serve our regions. Along the way, we also established relationships with the world's best brands and boutiques to create a marketplace for an industry that didn't have one before. Now we turn our focus to Chapter 2. When I think about who is going to take the lion's share of this growth in the industry, I believe it will be a single platform company. I believe Farfetch is uniquely positioned as the global platform for luxury to be the catch free leader in this space, and we're absolutely focused on growing ahead of the industry pace to capture this opportunity. Thank you again for joining us. And with that, I'd like to ask for your questions. Your first question comes from the line of Douglas Anmuth from JPMorgan. Your line is open. Great. Thanks for taking the questions. I have 2 if I could. Just first on strategy, pretty clear in the 3Q numbers and the 4Q outlook that you're optimizing for growth and market share. Just curious if you can just highlight the top three investments in the business as you're thinking about them into 2019? And then secondly, the take rate was better than expected in 3Q. Can you just talk about how you expect that to trend as brands and potentially department stores become a bigger part of the mix? Thank you. Ladies and gentlemen, we are experiencing a technical difficulty. Please hold the line. Thank you very much for your patience. Your next question comes from the line of Eric Sheridan from UBS. Eric Sheridan, your line is open. Okay. So I guess I'll leave Doug's questions for him to ask when he re queues. But maybe just thinking about the GMV growth you saw in the business, I want to know if you could get any color by geography of what drove some of the outsized GMV growth? How we should think about some of the global landscape you're seeing on the consumer side of the platform? And then secondly, turning back to the inventory side, some key announcements on the department stores and with some new brands, how should we think about some of those conversations continuing to evolve in terms of adding depth on the inventory side of the platform looking out to 2019 beyond? Thanks guys. Hi, Eric. Great speaking to you again. So, in terms of GMV, it's broadly followed the historical numbers that you've seen or recent historical numbers that we've been seeing with good growth across the three regions that we've been talking about, the Americas, Europe, Middle East, Africa, of course, and the Asian segment as well. And the mix has changed slightly within all of those. We're still seeing good growth out of China. Out of the Americas, actually, we've got good growth coming out of Mexico. And out of Europe and Middle East, very strong growth coming through from the Middle East. Of course, we launched the Arabic website across the first half and that is really delivering very good results in that region. So, again, broad mix of GMV, all growing, obviously, slightly ahead of where we thought we would be growing. Hi, Eric. I'll pick up on the second part of the question regarding the patent stores, brands and additions to the supply base. We're obviously delighted with the launch of Harvey Nichols. It was a very quick integration and technical implementation. So I thank the Farfetch team for that. We are, as I mentioned, in conversations with a number of other department stores and we expect this to evolve in a positive way. I would like to emphasize that these companies very large. So we are not looking to add dozens of them or a big number of them. It will be well paced to make sure that we add liquidity to the marketplace and add supply in a balanced manner. But we do expect the conversations to evolve positively in 2019. And we believe that we offer department stores a fantastic proposition. Department stores are typically domestic. If you look at their profile of online sales, they typically are only present in a big way in their countries, in their territories. And Farfetch is a global amplifier that provides them with incremental exposure to a global consumer, including very hard to crack geographies such as China, the Middle East and other emerging markets. So we continue to see strong interest from these companies, and I'm very happy with that evolution. In terms of brands, we have a very strong pipeline. So expect to continue to see many brands joining the Farfetch platform. We use our data set and our data capabilities and to constantly monitor which are the next brands we should add to our roster. And that is driving the conversation. So very positive outlook on that front. Your next question comes once again from the line of Douglas Anmuth from JPMorgan. Your line is open. Thanks. We'll try again. Just going back to the strategy on optimizing for growth and market share, pretty clear in the 3Q numbers and the 4Q outlook. Elliot, I was just hoping you can kind of highlight the top three investments as you're going into 'nineteen. And then second, just following up on the department stores and brand mix, can you just talk more about how you expect take rate to trend as those become a bigger part of the business here over time? Hi, Doug. It's Jose. Nice talking to you. Apologies for some problems in the line before. I think in terms of the broad areas of investment, I expect to see a continuation of what we've seen in Q3 with investments in technology, we are seeing incredible benefits and very fast return on investment. The conversion rate, for example, of our China app is double digits above the previous app. But we're seeing across all the literally dozens of products we're launching every month, we're seeing a very good return on Other Other areas include the brands. We believe that's a big opportunity to build the Farfetch brand. As you know, brand marketing sits in our SG and A cost line. And there will be some investment in that area potentially in 2019 depending on the results of the current investments we're doing in the brand marketing area. And finally, retention and loyalty. As you could see in Q3, we are we're seeing very strong results in terms of investing in our best customers, rewarding them with free shipping, rewarding them with the strong loyalty programs. And this is something that has a positive effect on demand generation because existing customers cost less in terms of demand generation obviously than the new customers. So deploying some of the efficiencies back into customer retention is something that is resulting well and we will probably continue to continue on that path. I'll let Helios pick up on the take rate question. Yes. On the take rate, so quite rightly, as you say, Doug, we saw a better take rate coming through in the quarter than we had expected. And as you know, that is broadly down to the mix of the different boutiques by size and brands by size. And what we actually saw across the quarter was less of a mix effect in terms of dragging the take rate down because we saw very strong growth from our smaller partners and our boutique partners, which obviously at an average take rate that's higher than some of the larger brands that we added over the last 12 months. And we're also seeing, as I mentioned earlier, a really good renegotiation period where we're seeing commission rates moving up in terms of renewing contracts. And that's on the back of the value added services that we're providing. The brands and the boutiques absolutely, C. D. Farfetch is an excellent channel to drive growth and really reached the audience, 1,200,000 customers, very young customer base. So the customer reach is very appealing and we're getting good value from that. In terms of sort of looking forward, we should still expect that there will be moderation in the take rate as we move forward. My sort of long term target of around 30% remains the same. I still think the range over the short term is 29% to 31%, just above 31% in the short term as we balance out the mix effect as the bigger brands are coming on board. But long term, 30% is still what I have in mind. Your next question comes from the line of John Blackledge from Cowen. John Blackledge, your line is open. Thanks so much. Just a couple of questions. You realized good leverage in the on demand generation expense line. Wondering if you could provide some maybe some more details on the efficiencies you saw there in the quarter? And then on the guide, at the high end, plus 45% year over year, it's a bit of a bigger decel than you saw last year. Just curious with the higher selection with more brands and boutiques and department stores heading into Q4, the puts and takes for potential upside to your guide? Thank you. Hi, John. Yes, so in terms of guidance for Q4, obviously, Q4 last year saw the holiday season with the new brands coming on board. So, we had quite a large collection of some of the bigger brands come on board. So, we're annualizing against that offering for the consumers. So, I think we need to see how that works through in terms of growth rate, particularly on those brands and the mix effect on other brands. As I said, we've got a fantastic offering going into the key events over the next 7 weeks. I'm expecting 42% to 45% year on year growth. Again, broad mix of supply driving that growth. And it's really annualizing those sort of brands that's causing the sort of drop to 45 from 53 across the Q3. So, just going back to your question on demand generation. So, as you've seen in the past, the same sorts of effects are happening here, particularly the loyalty of customers. So we're really able to drive good loyalty across the quarter. We've seen the GMV from existing customers again increase from year on year. And so that's helping us to bring down the overall demand generation cost as a percentage of revenue. But then in terms of targeting the online channels that we are using, it really is harnessing the power of data even better than we've done in the past through programmatic targeting to identify those with sort of propensity to buy luxury and really focus our spend on those customers rather than blast the entire population. And that's continuing to drive good efficiencies in terms of our cost per visit and absolutely bringing that acquisition and retention cost down. Your next question comes from the line of Stephen Ju from Credit Suisse. Mr. Ju, your line is open. Okay. Thank you. So, Jose, you highlighted a few new brands as direct partners on black and white. Curious in terms of the way they behave when they sign on. Do they usually put all their inventory on all at once? Do they typically scale up over time? FX translational impact to AOV. Anything you can FX translational impact to AOV. Anything you can highlight from a transactional standpoint as potentially the local power of a consumer gets negatively impacted? Stephen, thanks all for your question. Black and White is doing really well. So as Elliot said, it's growing it's actually growing faster than the marketplace. We have created a process in terms of signing the brands, building the sites and apps. Now with 3 offices in China, we've extended that WeChat mini programs. And integration and onboarding of those brands. So it is now a streamlined process and we do see a very rapid ramp up of the inventory levels as we integrate with the brand distribution centers, but also with the brand's flagship stores. So very happy with the black and white performance. And Elliot, do you want to cover the other question? Yes. So, on the translation effect, as I said, that's the main driver of the reduction in AOV year on year. If you sort of strip that out on an underlying basis and to your question about how customers are reacting if the currency is getting slightly weaker, we are actually seeing a growing mix of categories that are slightly lower priced. Jose mentioned earlier on around streetwear and trainers. That's a category that we are seeing growing very strong within the broad mix. But that's actually offset by higher items per basket. So a slight increase in items per basket outweighing, I guess, that downward pressure from the mix. So the underlying AOV is, as I said, broadly flat year on year. So people adjusting to a different category mix, but adding more items to the basket on average. Your next question comes from the line of Ike Boruchow from Wells Fargo. Mr. Boruchow, your line is open. Hey, everybody. This is Tom Nikic on for Ike. Ike, sorry, he can't be on the call, but congratulations on a nice Q1 out of the gate. I just wanted to ask about the platform gross margin and the increase in the 1 piece sales and how the sort of interplay there. You had really, really strong 1P growth in Q3 and I'm kind of wondering go forward, was that sort of exceptionally high in Q3 and sort of the drag that we saw on the platform gross margin should lessen go forward? And just in general, how should we think about the platform gross margin in Q4? Thanks. Hi, Tom. So, yes, I think the key measure I look at obviously is order contribution margin. That captures all of the moving parts in terms of the variable costs within the basket. And as that you've seen in the Q3, numbers that's ahead 82 bps to 40.8%. What's actually happening is, in terms of platform gross margin on its own, the investment into the free shipping proposition by putting more weight behind that is driving good engagement from customers. It's pushing down the platform gross margin because we're investing in the basket slightly more than the efficiencies we're gaining from our scale. We're obviously benefiting from the fact that we had a number of orders this year more than we had expected. So we're reinvesting the scale that's coming through from those orders back into the free shipping, driving down the gross margin. So, that actually is benefiting the demand generation costs. So, net net, we're actually up in terms of the value of that basket when you bring all of that together. The other side of it, as you said, is the 1P business. That did grow around 3 times the rate of the overall market. That's where we're really seeing opportunities to buy product that we know our customers are going to buy into using the data that we have around our customers, around the fashion trends that we're seeing, around categories that are performing very well and using that using our own balance sheet to buy on that. Now obviously, it's still quite small when you compare it to the overall marketplace, but a good business go up as a result, better full price sell through, fewer markdowns and a much better mix in terms of meeting the customer requirements. So, when you kind of add the investment in the free shipping, the savings we're getting in terms of logistics, in terms of scale, the better 1P gross margins. Obviously, the headwind of the mix moving slightly more towards 1P offset with the improving demand generation by using the data. We are actually improving the variable contribution per order, as I said, 6%. So if you did order contribution over the number of orders, last year, we were at $61.80 order contribution from that order contribution level divided by orders, that's now up to $65.50 So a big step up there in terms of profitability per order. Your next question comes from my apologies. Go ahead. I was just going to sort of follow-up on Tom's last bit to the question around moving forward. Long term, I would expect the 1P business to settle down at around 5% of our overall GMV. Clearly, it's a bit higher than that at the moment. I think in the short term, we will still see good growth from that 1P business. So, 5% to 10% of our overall GMV short term is probably where you can expect the 1P business. Over the longer term, that's going to moderate back to 5% overall and the growth rates will turn back in line with the overall growth rates of the platform. Your next question comes from the line of Louise Singlehurst from Goldman Sachs. Ms. Singlehurst, your line is open. Hi, good evening. Firstly, thank you to Jose and Elliot. Very clear commentary, so thank you for that. Couple of quick follow ups for me, and firstly, probably for J. Z. The focus on the building of the market share is absolutely clear, and I think it's fairly evident by the big outperformance of the growth versus anything that we've seen in the luxury industry so far in Q3. Can you just talk about how the discussions with the brand are changing, particularly now that you've got this big jump in terms of the number of active users coming through? And with that, I suppose I'm really asking what are the sticking points or brands not to join the platform? I presume that's around their data and data usage. And then my second question for Elliot, if I may, just in terms of if you can talk about more broadly how you manage the P and L given the big growth, I. E. Balancing the AOV with the demand generation, I. E, we're very clearly getting a nice growth coming through with a high profit contribution from the incremental sales? Thank you. Hi, Louise. Thank you for your questions. Great talking to you. I think there is a great interest around our platform absolutely from the brands. I think the brands have realized that Farfetch is a more strategic advantageous channel than other multi brand channels, which are essentially wholesale online. We offer higher margin. We offer full control over the merchandising mix and full control of pricing, which are critical factors for the brands. And Farfetch is now a global amplifier, allowing the brands to crack very different geographies such as China, Middle East, Russia, Latin America. And and reach the consumers they absolutely need to reach the millennial and Generation ZARE consumers. So that's the great reception that we're seeing from the brands. And to be honest, we are being extremely successful with the brands across different categories, different groups, different geographies. We have pretty much most of the carrying group on Farfetch. We have some brands from LVMH such as Tendi, but some others on the platform. Tag Voya, for example, We have Valentino directly on the platform. We have Prada directly on the platform, Burberry directly on the platform. So I don't know your question around data set, it's not really a point of resistance because in fact, I think it's the opposite, we do provide anonymized data that is very valuable to the brands. Obviously, the brands understand that GDPR rules are in place here and therefore the full visibility of the individual data is not a real possibility. And that is very clearly understood. And within those boundaries, we work with the brands to leverage the data because it's a win win. The better the brands the better decisions the brands make around their merchandising mix and what they should upload to Farfetch, the higher the conversion rate and the best the more efficient our own business gets. So, of course, there are brands that we would love to have that are not yet on the platform. It's an ongoing conversation. And as the seasons go by and as time goes by and we continue to prove that we were reliable and trusted innovation partners for the best brands in luxury, we expect those conversations to evolve in a positive way. And so just kind of turning to your question about optimization and how we run the P and L, it's a little bit like conducting an orchestra really. There's quite a lot of moving parts. But I think the key thing that we do focus on is maximizing that order contribution, both from a cash point of view, but also the order contribution margin because that does take into consideration everything that's going on in terms of basket size, shipping costs and benefits coming through there, of course, take rate as we see the mix of suppliers coming through, plus the broad mix of channels that we spend money on in terms of engaging existing customers, which is obviously key priority to keep our loyal customers engaged, but then also targeting new customers to help drive the sort of engine for future growth as we see the cohorts in a really good place. And so we're monitoring that sort of order contribution cash, order contribution margin on a daily, weekly, monthly, quarterly basis to make sure we're getting the optimized level of profitability flowing through, which then, of course, allows us to invest into our technology. And as you've seen in the Q4 numbers, we brought a little bit of that investment forward because we saw the additional order contribution coming through and felt right to invest in the great pipeline of activity that our product and tech team have to deliver. And so, really important for us to keep an eye on the sort of the profitability per order point of view. We have time for one more question. The final question will come from Lloyd Walmsley from Deutsche Bank. Lloyd Walmsley, your line is open. Thanks. Wondering if you can talk about what you are seeing across cohort behavior, specifically are you seeing continued good retention in spending from older cohorts? And then when you look at newer cohorts, are they showing similar patterns as the older cohorts? And then a second one, if I can. Wondering if you can just talk a little bit about what you're learning in the new fine jewelry category. There anything different about this category in terms of customer acquisition or how your existing customers are purchasing in this category that you'd be able to share with us? And then any other new categories in the pipeline or that could be interesting to add to the platform over the next year or so? Thanks. Hi, Lloyd. Sorry to disappoint you. I'm not going to give you too much information on a cohort by cohort basis. As Louise said, we've seen a great step up in terms of active consumers from June into September. As I said before, we're seeing more GMV again come through from our existing customers. So year on year, that proportion of GMV is again driven up Q3 on Q3. And we're seeing good payback as we've seen in the past, good retention ability. Clearly, a lot of work is going into, as we've talked about in the past, 2nd and third order activations. So, the team is working on our loyalty and really exciting developments in terms of engaging with customers there. So, overall, very happy where we are, but unfortunately not going to break it out by cohort for you. So, regarding the your question around fine jewelry, thanks for the questions. It's a topic I love to talk about. Very passionate about this new category. I think we've launched it with some great brands including Tiffany's and Beers and other great names such as the Double Street Market collaboration. And to your point, it is a different category. Obviously, the average order value is much higher. We have a great VIP offering and the VIP department. Obviously, this category is the category that our private clients, which is the name we give to that segment. Our private client customers absolutely love and they're driving a lot of the business in that category. As I mentioned, we sold, for example, 150,000 diamond necklace set just recently. And we have seen lots of buzz and excitement around this category. To your point, it's a category where we're still learning. I think we're doing baby steps and we expect a lot of upside and obviously big runway in this new category. We're also excited to your point around new categories, we're very excited about streetwear, luxury streetwear. I think Farfetch already has the best selection of luxury streetwear 3 players on the Internet. Our customer is 34 years old on average, 29 in China and they love the category. So off white, Stadium Goods, which is the resale, the rare sneakers, limited edition sneakers, consignment marketplace was added as a seller, Heron Preston, Palm Angels, there's a number of really, really interesting brands and retailers that we have added to the platform and we will continue to next year to invest in that new category. And essentially, we see a lot of runway. And we I'd like also to mention kids, which is relatively new on package, only 3 seasons old. And we see a big potential also in that market. So broadly, we will continue to make further progress on the categories that we've launched recently, and that will be the focus for the coming season. By the way, I'd like to apologize again for the tech issues on the call. I don't know which side of line was it, but we seem to be back in good shape on the tech front. Thank you. And with that, we'll end the call. Thank you all for dialing in and we look forward to speaking to you for our Q4 call.