Farfetch Limited
Q4 2018 Earnings Call Transcript

Published: 1 Mar 2019

[Operator:]

Good afternoon. My name is Chantelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Farfetch Fourth 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. [Operator Instructions] 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.

[Alice Ryder:]

Thank you, Chantelle. Hello and welcome to Farfetch's fourth quarter 2018 conference call. Joining me today to discuss our results are Jose Neves, our Founder, Co-Chair and CEO and Elliot Jordan, our CFO 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 may 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 perspective 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 at farfetchinvestors.com. And now, I would like to turn the call over to Jose.

[Jose Neves:]

Thank you, Alice. It's great to be with you today and thank you for joining us for our Q4 and full year 2018 call. By all measures 2018 was a blockbuster year for Farfetch. It marked our first 10 years of what I like to call chapter one, foundation for incredible opportunities ahead of us over the next decade, our chapter two. Our GMV for the full year of $1.4 billion and in Q4 of $466 million, both represented all-time highs for Farfetch with growth rates of 55% and 50%, respectively. This incredible topline performance and is caused by our unwavering execution of our growth strategy. Farfetch is growing faster than any other company in luxury. It's twice the pace of the online luxury market and above our expectations even in the face of recent macroeconomic uncertainty. Our chapter two strategy has 4 pillars. Growing our consumer base and improving consumer economics; increasing product supply and our luxury seller; invest in technology and innovation; and finally building the Farfetch brand. We are extremely happy with our execution against our strategy. In fact, recent milestone achievements represent an acceleration of that strategy in 2019 to deliver even higher more sustainable growth in 2020 and beyond. We began advancing to chapter two at increased speeds. I'll now outline our significant milestones against our four strategic pillars. Towards our first pillar, growing our customer base and improving consumer economics, we increased our active customers, 45% to $1.4 million at the end of the year. As you know our philosophy in terms of customer acquisition and retention focuses on CAC/LTV and LTV to CAC ratio or payback time. We're delighted that we're continuing to see higher retention and consistent positive evolution of six months LTV and payback continues to be less than six months, even as we decided to ramp up in terms of customer acquisition and had faster than expected year-on-year GMV growth. The philosophy has driven our record quarter in Q4 with GMV year-on-year growth of 51% beating our expectations of 42% growth while still delivering the expected order contribution of $59 million and also delivering our expected adjusted EBITDA of minus $15 million. We have launched new markets, including the Middle East, which became one of the fastest growing markets in 2018 and saw all three of our geographic areas; the Americans, EMEA and APAC exceed 50% GMV growth in 2018, which speaks to the global appeal of our offering. Additionally, in China, which is our most strategic play, we've struck a new landmark deal. As you may have seen today, we announced the acquisition of Toplife JD.com's luxury platform. In conjunction with the transaction Farfetch will replace Toplife on the JD platform taking over Level 1 access on the JD app, which is the most prominent division on JD.com's app home screen, effectively providing our 1,000 luxury brands, boutiques and department store partners, direct to consumer access to JD.com's 300 million shoppers. This transaction builds on the range of moves we have made to strengthen our position in the Chinese market, which now accounts for the vast majority of growth in the luxury industry and positions us with what we believe is an unrivaled solution to help luxury brands succeed in the Chinese market. By combining this Level 1 Access on JD, with the capabilities of CuriosityChina, we now offer luxury brands a one stop solution for developing a digital strategy for China, creating the premier luxury gateway to China. I'd like to highlight the importance of this move to cement our role as the global platform for luxury. China represents a paradox for today's luxury players. It is the fastest growing part of the market, but by far the hardest to crack. For any luxury brand there is one single most important strategic priority, to win the Chinese millennial consumer. And these can no longer be done by a physical store network, but rather by mastery of the Chinese digital channels. This deal represents an acceleration of our strategy in China and will require further P&L investment in 2019 to deliver higher growth in China in 2020. The investment of circa $60 million in 2019 will include any costs on the phasing in of Farfetch as the luxury channel on the Level 1of the JD app, boosting of our existing fulfillment, by Farfetch capabilities in Shanghai, extension of our China team to compete [ph] in the new channel as well as brand awareness and demand generation investments. We expect this extra P&L investment to begin in Q2 and intensify in Q3 and Q4. Whilst in the short term this represents a shift in our previous plans in terms of path to profitability in 2019, investing in China, and this landmark acquisition is the right thing to do and will lead to further growth in 2020 and beyond positioning Farfetch as the premier luxury gateway to China. Overall, we're extremely happy with our market share gains, in an uncertain macro environment we've beaten our high growth expectations, even when comping against very fast growth from previous years. This sustained, high growth at scale, is a function of the network effects, enjoyed by our superior marketplace model. Turning to supply, we continue to deliver a compelling value proposition to not only retain but also grow our seller base to more than 1,000 brands and boutiques by the end of the year and extend our relationships to also partner with department stores, including the iconic Harvey Nichols. On this front, we're delighted to have expanded our department store relationships in Q4 with the addition of two new panels in the Middle East. Rubaiyat in Saudi Arabia and Tryano in the UAE. During the year we also expanded our offering to include watches and fine jewelry, a category where we saw some of our highest transaction values and we're excited to welcome Stadium Goods to the Farfetch family with the completion of the acquisition last month. As I mentioned on our previous calls, street wear has been one of the fastest growing categories on our marketplace. Stadium Goods is the luxury player in the adjacent 70 billion premium house wear [ph] market, which is largely incremental to our business, and we're excited to go after this global opportunity. We expect the integration of Stadium Goods in the Farfetch platform to be fully completed in Q3 following semi investments in the Farfetch platform to support the price by SKU model which is particular to the retail industry. During 2018, we also made continued investments in technology and innovation to advance our third strategic pillar. As we mentioned last quarter, we now have a data center in Shanghai to handle 100% of our China traffic, which enables us to provide a much faster experience while also localizing the app and size to tailor the look and feel to the preferences of the Chinese luxury consumer. This data center exists behind the China firewall but it's still linked via a software defined wide area network with our other data centers, which was a major technical achievement, and we have already begun to see this investment drive improved conversion. On the B2B side, Black & White Solutions, our white label service for brands and boutiques have been firing on all cylinders and picking up momentum throughout the year to close out 2018 with six new brand launches in Q4 to end the year with 17 total clients. Recent sites launch by the team includes two LVMH brands; JWN and [indiscernible] carrying a few years out to Zara and Anne Leek [ph] in China. And like the most SaaS e-Commerce packages, we offer an end-to-end solution for China including cross border logistics, localized payments and an integrated global tech architecture which we believe will continue to be a competitive advantage of our enterprise offering in an industry, where most growth is coming from the Chinese consumer. LVMH branches of Lou Anderson [ph] is an example of a brand we helped launch in China from day one which highlights this unique black and white capability. We are also very excited to have been selected by Harrods, the world's most famous department store, to be their exclusive technology partner in helping them relaunch the global eCommerce site and we'll be working throughout 2019 towards the targeted go-live date in 2020. We are thrilled with the acceleration of our enterprise offerings represented by the editions of Harrods and Chanel, our first multibillion dollar luxury enterprise clients. These landmark deals or successes also represent an acceleration of our chapter two strategy. In an effort to focus on these clients and add a similar enterprise level customers that we are targeting for 2020 and beyond we have decided to harmonize our B2B Enterprise platform portfolio of products and services under one single banner, Farfetch Platform Solutions or FPS. FPS will incorporate Black & White, Store of the Future and CuriosityChina offering these business unit under one single banner to simplify our enterprise offer to the luxury industry. The Farfetch platform solutions mission is to offer luxury brands and retailers a suite of products and services leveraging the Farfetch platform and the system to build their own brand new digital businesses. Current clients include Harrods, Chanel, both carrying LVMH brands, and in China, Ralph Lauren, Coach, Montclair. Hugo Boss among others. We now operate websites for 17 luxury companies, which has [ph] program for another 80 and innovation partnerships with both Chanel and Tom Brown. In 2019, we will continue to invest in our technology to deliver the FPS vision and following the successes with Chanel, the first two LVMH brands we have recently launched, and the Harrods partnership we plan to allocate an additional $10 million of technology spend to accelerate the existing FPS plan. One important point to also note is that all the technology we build us develops a our Farfetch platform API level, meaning that the new features enabled for our enterprise partners automatically become available for our marketplace and vice versa. As a result, we expect investments contemplated to support our B2B clients to also benefit our marketplace. Whilst the contribution to our revenue coming from FPS is still relatively small in 2019, we believe we're creating a high margin recurring revenue business line for the Farfetch Group, leveraging the overarching investments we have made in the Farfetch platform. Finally, we also made strides on our fourth strategic initiative building our brand. In the coming weeks we will unveil a revamped brand marketing strategy. In preparation for these we strengthened our fantastic team with the expansion of Holli Rogers' role to also be the Chief Fashion Officer of Farfetch. In recognition of her outstanding work reigniting the iconic brands to become what is today widely recognized as one of the most progressive luxury boutiques in the world. Also part of our brand pillar is Access, our big bet on loyalty. As I mentioned to you last quarter we are very excited about Access a program which we started testing in 2018 primarily in UK and has shown excellent results so far. While it's still early days for the program we're encouraged by the significant uplift in both customer engagement and spend per customer of those introduced to Access versus the control group. As a result we have decided to roll out Access at a global level. We have been phasing in the program since fall and expect the roll out to continue and be completed in Q2. We believe that driving loyalty is going to be transformational for Farfetch and Access builds on the success we have already seen with our private client program which we introduced in 2017. Our top 1% customers currently represent 26% of our sales and we have seen customers - these customers consistently exhibit significantly higher retention and AOV relative to the overall customer base. Unlike private client, which supplies a small segment of our customer base, Access introducing five tiers of advantages to all of our customers and delineates a path to the highest tier private client. By enabling our customers to move up from bronze to Silver to Gold to Platinum and ultimately to private client we vastly unlatched the customer base who can take advantage of our potential benefits, and through that have repeat purchasing behavior across all groups as a [indiscernible] throughout the year. Benefits range from welcome gifts, early access to new releases, exclusive events, free global shipping, expanded returns, exclusive access to certain brands and collections, your own personal stylist and fashionable peers among others. I am very excited about the launch of Access and while this represents an investments in our contribution margin in the short term our pilot demonstrated a significant upside in terms of medium term profitability. We believe investing in loyalty will reduce long term demand generation cost, increased retention and spent per customer, ultimately paying off against the upfront other contribution investments. And with that I'll turn it over to Elliot to go over the Q4 results in more detail.

[Elliot Jordan:]

Thank you, Jose and hello everyone. I'm delighted to present to you the 2018 fourth quarter and full year financial results for Farfetch. We've completed another strong quarter to cap off our IPO year. With GMV growth of 55% to $1.4 billion, 2018 was our 10th consecutive year with more than 50% GMV growth. 2018 Group revenue grew 56% to $602 million with Group adjusted revenue growth of 62% to $505 million. In Q4 we saw a strong momentum in platform GMV, which increased 51% to $462 million exceeding the high end of our previously provided guidance. I'm particularly pleased by this performance as we are comping against a Q4 '17 growth bright of 58%. Our stronger than unexpected GMV growth in Q4 resulted from deliberate actions we took to invest in our customer offering during the peak holiday shopping season towards the latter half of the quarter which accelerated active customer growth a 45% in Q4 to $1.4 million and increased customer shopping frequency, which when combined drove order growth of 58% during the period. As expected Q4 average order value declined year-over-year by 5% or $33 per basket to $637. Approximately $15 of this was due to the currency translation impact from non-U.S. dollar baskets on our overall AOV $13 was a result of lower fulfillment revenue per order as we increased our mix of domestic orders, we responded to price actions we saw being taken across the industry and we invested into loyalty incentives as part of our new loyalty program access. The remaining movement was in relation to category mix. Our third party businesses where we provide an end-to-end technology solution and act as a selling agent for luxury retailers, continues to represent over 90% of our platform GMV with strong growth from our 1,000 plus boutique brand and department store partners selling via the marketplace. We also have 17 black and white clients doubling Q4 white label GMV year-on-year. Our first party GMV, we purchase stock at wholesale and sell across our platform, grew over 200%, year on year as we continued to tap into our unique customer and fashion data capabilities to drive an offering that appealed to our overall customer base. Looking at revenues derived from our platform GMV, our Q4 platform services revenue which excludes the fulfillment revenue and Browns, in-store revenue grew 68% year-on-year as a result of the stronger GMV growth and a stable third party take rate of 32%. This take right highlights that level of value added services we are providing to our sellers on the platform and whilst we are seeing strong growth from larger lower commission sellers, we have been improving underlying commission rates and charging for additional B2B services such as advertising and media solutions as well as website boot [ph] and management fees, which has resulted in blended take rates remaining at similar levels to Q4 '17 and Q3 '20. Our Media Solutions product is gaining traction with our larger brand clients. We offer solutions to help drive growth across Farfetch and improve the clients' brand awareness amongst our luxury focused millennial customer base. This drove a seasonal benefit in our take rate over Q4 with some strong holiday inspired campaigns. The superior platform services revenue growth of 68% in Q4 versus our 51% platform GMV growth reflects the step out of our first party sales to 8% of the platform GMV mix from 4% in Q4, 2017, and the fact that 100% of this GMV dropped through to revenue. This is important to note as the full accounting treatment of faster one piece sales growth impacts the calculated order contribution margins. We're very pleased with the 48% year-on-year growth in platform order contribution to $59 million, which was 12.7% of platform GMV, versus 12.9% in Q4 '17. We manage our day to day trading across the marketplace to deliver absolute profitability, and to grow the active customer base with good quality cohorts. You can see that we have more active customers than we previously anticipated, as we exit 2018 and the most recent lifetime value metrics show positive trends as these cohorts are maturing. This means we always have one eye on the longer term potential from customers and one eye on the delivered contribution. We reinvested efficiencies derived from marketplace cost of the sales and demand generation costs which grew 35% and 46% year-on-year respectively versus the stronger 58% order growth back into our customer proposition, driving customer growth and loyalty in particular to trigger second and third time orders which we have seen drives longer term retention and stronger lifetime values. Within this our loyalty program Access is showing positive early indicators that it is boosting engagement and frequency of shop. Order contribution margin was 35.4% in Q4 '18, compared to 40.1% in Q4 '17. Unpacking this change approximately half the year-on-year reduction was driven from a combination of the higher first party mix and lower first party gross margins including price investment and one off clearance activities. The other half comes from our investment into customer acquisition and loyalty, driving an improved and longer term outlook with our higher take rate and GMVBs across Q4 allowing for this investment. Moving to our other expense lines, we have seen very good leverage within the general and administrative costs base at 33% of adjusted revenue in Q4 '18 versus 52% in Q4 '17. The strong growth in revenue was controlling the growth of our platform services account management, customer service and corporate cost has been the key sector in driving this leverage. Also within the stronger leverage is a partial reversal of accrued expenses related to executive bonuses. As previously guided we continue to ramp up technology spend which grew 49% to $18 million within the quarter. The P&L charge of this investment for full year 2018 was 14% of Group adjusted revenue up from 10% in 2017 reflecting the expanding product and engineering teams delivering the platform developments critical to our success. Adjusted EBITDA loss for Q4 was $15 million or negative 8.6% of adjusted revenues. For full year 2018 our adjusted loss was $96 million or negative 19% of adjusted revenues. Of note below adjusted EBITDA that our Q4 share based payment charge of $3 million and Q4 depreciation and amortization charge of $7 million. The share based payment reflects the quarterly charge of our annual stock-based compensation plan and any revaluation of associated employer taxes and cash use were options which fluctuate based on the quarter end share price. At current levels every $5 increase in our share price drives the corresponding increase in this liability by approximately $15 million. We expect this impact decrease over the next two years as these legacy cash zeroed [ph] options vest into cash. The slight step up in depreciation and amortization quarter-on-quarter reflects the increase in capitalized development cost in relation to the long term infrastructure and assets we are developing. As a reminder we amortized these assets over a three year time period. The results in Q4 loss after tax was $10 million and loss per share of $0.03. For full year 2018 loss after tax was a $155.6 million and loss per share of $0.59. In terms of liquidity we ended the year with $1 billion in cash and cash equivalents or $850 million if we adjust for the cash set aside for the Stadium Goods acquisition which we completed in early January. You can clearly see the benefits that are coming through as a result of our investment programs to-date. The core market place is delivering strong growth, faster than expected market share gains and expanding our reach into key territories. The 1P business is growing faster than expected which is delivering good contribution to the group and we are scaling the underlying cost base. These more mature businesses are driving the bulk of our income streams over 2019 but as we start to align our B2B platform services under one umbrella this year which we inherit as anchor clients. We're expecting B2B revenues to accelerate in 2020 with continued investment in our platform technology ahead at this stage. We believe the acquisition of Toplife and strengthening relationship with JD creates some much needed premier luxury gateway to China and positioned Farfetch like no other western company to capture increasing share of spin from the Chinese luxury customer. The acquisition of Stadium Goods positions Farfetch to capture significant share of the $70 billion premium sportswear market, especially once we roll out the Stadium Goods brand in China in 2020. China is already the second biggest market for stadium, and with some targeted investments has significant growth potential. I should note that media reports of $100 million GMV to Stadium in 2017 was somewhat exaggerated and therefore the initial impact of this acquisition to the Farfetch group is smaller than what has been presumed. So if we look ahead to 2019 we see continued strong growth in GMV which means we now forecast 2019 platform GMV to grow faster than our previous expectations at around 40% year-on-year. We expect platform services revenue to grow ahead of this at around 43% to 47% year-on-year as the first party mix increases. Our focus on building our customer base means we will continue to manage towards the platform order contribution of around $260 to $280 million, growth of around 40% year on year. This targeted order contribution incorporates the increased upfront investment and customer acquisition, access for loyalty and the growth of Stadium Goods. On the cost base. We intend to deploy additional resources to exploit the opportunities that have arisen from our recent acquisitions. As Joe and I said earlier, we will be increasing our investment into China, particularly around platform technology, brand awareness and to boost our operational and customer services teams to support the new growth opportunities. We will also deploy more engineering resources to support the development of Farfetch platform solutions. As a result, we expect technology spend will grow in line with adjusted revenues. And we expect G&A spend to be in the low 40s as a percentage of adjusted revenue versus 45% in the year just completed, incorporating all of our investments while still delivering leverage. As a result, we're now targeting full year adjusted EBITDA margin for 2019 at negative 18% to 19% of adjusted revenue. Whilst incorporating the P&L of our new businesses and investing behind these acquisitions recharge the near term route to profitability, we believe additional P&L investment now will deliver stronger GMV growth in 2020 and beyond can drive us towards our longer term 30% EBITDA margin target. Note this guidance is before the impact of adopting IFRS 16 for operating leases from January 1. This is similar to U.S. GAAP ASE 642 which I'm sure you're all familiar with. We estimate a 2% increase to adjusted EBITDA margins as a result of adopting the standard as circa $17 million of rent will shift down to depreciation and finance costs in 2019. Specifically focusing on Q1, although we are comping against the strongest quarter of 2018 at 67% growth, we are very encouraged by recent marketplace performance. So we are now expecting platform GMV growth of around 40%. We expect this growth will again be driven from strong order growth and we expect continued currency pressure on the ARV position as a result of this currently stronger US dollar versus Q1 in 2018. There will also be a small impact from the lower IRV at stadium goods. At the adjusted EBITDA level, incorporating the P&L from stadium goods and flowing through the increased near term customer investment we are now expecting an adjusted EBITDA loss of 22% to 24% of adjusted revenues. Again this is prior to a circa 2% benefit from the adoption of IFRS 16. As we enter 2019, we are very happy with the accelerated execution of the long term strategy and how the financial profile of the group is shaping up. This is a year of continued investment into our growth opportunities and I look forward to sharing the results with you as the year develop. Jose?

[Jose Neves:]

Thank you, Elliot. Farfetch had a blockbuster 2018 not only capturing market share at an outstanding pace but also cementing several landmark deals in Q4 and Q1 2019 and paving the way for accelerating our chapter two strategy. To mention the most recent. The acquisition of top life and development of the luxury gateway to China. The acquisition of Stadium Goods entering the premium sneaker refill category. The success in attracting multi-billion dollar enterprise clients such as Harrods and Chanel, leading to the launch of our five edge platform solution, strategy and advantage in our brands, particularly the rollout of access. The way I see it, we have built an incredible foundation for our next 10 years, our chapter two. Luxury still has very low online penetration, 10% as of the end of 2018. And we believe we are uniquely positioned 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 billion. Over the next 10 years, online penetration of the $500 billion industry is expected to grow from 10% to 25%. And this means, we have the opportunity to go after an incremental $100 billion of sales in the online luxury market. And we have the arsenal to go after this huge opportunity. The acceleration of our chapter two strategy means that we will reinvest the leverage and efficiency from demand generation technology and our fixed cost base in seizing these new landmark opportunities in 2019 to deliver higher growth in 2020 and beyond. We are executing on all of these initiatives in 2019, while slightly improving our adjusted EBITDA matching from 2018 levels. Demonstrating a very clear focus on balancing investment with our long-term path to profitability. This is consistent with our strategy of remaining focused on the big picture, as this vast industry transforms right in front of our eyes. As we always have, we will continue to invest in sustainable growth as a priority, over short term profitability, when we see opportunities to advance our ambitions. And we are extremely happy that 2019 is proving to be a year, where such opportunities have in fact accelerated. I would like to congratulate all Farfetchers for a blockbuster 2018 and an extraordinary start to 2019. Thank you. Alice, we should open for questions now?

[Alice Ryder:]

Operator, can you please open it up for questions.

[Operator:]

[Operator Instructions] Your first question comes from Douglas Anmuth with JPMorgan. Your line is open.

[Douglas Anmuth:]

Great, thanks for taking the questions. I have two. First, just wanted to ask you about the department store strategy. Obviously you had some good progress here recently with Harvey Nichols on the marketplace and now Harrods on Black and White. But stepping back, can you just talk about how important of a strategic initiative this is for you and what role department stores could play on the marketplace over time? And then second for Elliot, can you just talk a little bit more about the Stadium Goods timing and contribution, anything you can quantify there for 2019? Thanks.

[Jose Neves:]

Thanks Doug, great speaking to you. And I think, first of all, I think we have an extraordinary proposition for the patent [ph] stores. We were a platform for the best curators and creators of luxury and department stores, obviously are great retailers and these institutions, usually very iconic, they have, a very strong domestic brand awareness. However, their business is usually very domestic focused. And what Farfetch is does in fact amplifying their brand and their incredible offering to currently 1.4 million customers in all corners of the world with key geographies such as China, the Middle East, Latin America et cetera. And we've been having great conversations with the pipeline of department stores. Obviously these are million billion dollar businesses. So it's a relatively slower sale cycle to boutiques but we're definitely very happy with the progress. And we think the proposition is very strong. We're having very good results with the ones already on the platform and we expect to continue to have department stores as a key area of our supply.

[Elliot Jordan:]

And just on Stadium Goods, and first and foremost absolutely delighted to have Stadium Goods now within the Farfetch family. It's absolutely fantastic team. They've got their sights firmly set on the $70 million sportswear market. As we talked about last time, it's a very fast growing canopy with Farfetch in the business itself. And they have got a unique skillset to really allow us accelerate within their offering. First and foremost, if we understand the line [ph] initially we have got a bit of a technology development, as Jose said before in terms of full integration with the Farfetch platform. But we are absolutely getting behind their standalone growth, deploying quite a bit of working capital, so that they can boost some of their first party sales as well. They are using a very unique dataset that they have got, to identify the hotlines from a different brand. That will be coming on, and we can invest in that product and set up through very, very quickly. Their average holding on those hot property lines is very quick indeed. So we can turn over their capital very quickly. But I think overall we are not going to break out the numbers. It's included within that 40% year-on-year GMV growth that I talked about earlier on. And of course part of the operating losses that we guided to as well as we embed that within the business. I know the AOP is a little bit lower, so that will take a little bit of our overall AOV, and the contribution of the basket label's a little bit lower, this moment as well. So they will take a little bit off the order contribution as well. So that's all within the overall guidance Doug.

[Operator:]

Your next question comes from Eric Sheridan with UBS. Your line is open.

[Eric Sheridan:]

Thanks for taking my questions. Maybe two on GMV. One can you characterize any of the headwinds or tailwinds you saw in the upside to GMV in Q4 and how its informing your view about 2019 due to the macro environment at regions of the world. And a second part of the question is how much of the upside GMV you are seeing was due to your efforts? And could you give us a bit of color about how those efforts are bearing fruit in terms of driving more demand velocity harping on to the platform. Thanks guys.

[Jose Neves:]

Hi, Eric. I think - we are linked first of all very fast across all the geographies. So both EMEA, APAC and the Americas, all grew over 50% in 2018. So it's a very broad appeal and this is very exciting because it shows we have a product market achieved all around the world and a real global opportunity. And of course we will know the macro uncertainties in several regions of the world. But we are really focused on the secular opportunity here, very low online penetration, very fast growth of the digital channel. In the case of China driving - this market's driving 85% of the growth in luxury industry. And we are focused - we are focused the teams on really capturing these opportunity and using our strength our technology our product mix, our customer acquisition proficiency to really deliver what is, I think incredible growth. So in general, very, very satisfied, very happy with the progress across the different regions and business units.

[Operator:]

Your next question comes from Louise Singlehurst with Goldman Sachs. Your line is open.

[Louise Singlehurst:]

Hi, good evening, Jose, Elliot. Thanks very much for taking my questions. Just start off JD, if I may please. In terms of the partnership, can you just give a bit more detail about how it's actually structured. Obviously it's fully owned by Farfetch China, these are logistics solutions, changed under the new agreement. I don't think I have ever seen any numbers of users of Toplife, yeah, huge number on JD platform. But is there any color that you can give around the actual user base of Toplife and what that brings to Farfetch? And then my second question, it's for Elliot please, if there is any color on the cohort information and particular they have kind of progressed through 2018. Jose you kind of mentioned that the payback remained below six months. But I wonder if with more commission activity towards the end of the year how that impacts the LTV and how much you direct to, in terms of investment and spend towards a foreigner customers. Thank you.

[Jose Neves:]

Hi, Louise, great talking to you. And regarding Toplife and JD, first of all, I'm extremely, extremely happy with our Chinese partners. We signed the first JV one year and a half ago. It's been spectacular actually in terms of the speed of the integration. We are now using JD Logistics to power the fulfillment by Farfetch service in China. We effectively integrated with data capabilities in terms of leveraging JD and WeChat data for demand generation. We integrated JD Pay on the checkout and other services. And I think it's really building on that, on that very successful partnership that both party saw it as a win, win to really merge Top Life into Farfetch. These effectively means that Farfetch will have the most prominent position in the JD app, which has in general 300 million active users, and this group [ph] is a circle. Farfetch is very unique in that with one single integration if you have a knee confession on Farfetch, you wife in China and your wife in China on the Farfetch app which is the most popular Western luxury app in China according to UBS Research. And you have potentially your WeChat star [indiscernible] throughout China. And now you have potential position on - the position on an app used by 300 million shoppers in China. This is all done by one single technical integration where you leverage your catalog your prices, you can do cross border into China using the Farfetch platform. You can also do the [indiscernible] - in China. And it is an incredible gateway that we're creating to America it is quite frankly, very hard to crack. Very, very few luxury brands have an e-commerce presence in China,. So we're very, very excited. And we think the Farfetch supply, which includes 3,000 designers, which are supplied by 1000 sellers, between direct brands on the platform and boutiques, 600,000 SKUs yearly, All of this is going to be exposed to 300 million customers. And this makes the whole difference because what you've seen with previous initiatives on JV and other competitor, it's a limited number of brands and a very limited number of SKUs. And therefore the consumer proposition although they have the eyeballs, the consumer proposition is not there. What we offer to Chinese is real time access to the world of fashion, these are across border to the domestics. So we're very, very excited with it.

[Elliot Jordan:]

And Louis, hi, just coming to on the cohort. As Jose said the payback is still very strong. What we're seeing actually is increased retention and frequency of shop across the more mature cohorts, and as you know, that is the key determinant of lifetime value is the retention and the frequency of shop. So that's very strong. We're also actually seeing good AOV increases year-on-year for the vast majority of cohorts as well. So those cohorts are really pushing the LTVs up. I should say Axis is driving part of that it's not fully rolled out but we're we have got clients on Axis. We've seen engagement levels for those different categories much higher than those not on Axis. We've actually got a substantial amount of extra spin versus the control group, not on Axis during the rollout. So we that's why we decided to accelerate it, because we have so very strong indicators coming through. So all of the work on loyalty and investment in the customer is absolutely paying off for those determinants of long term value going up.

[Operator:]

Your next question comes from John Blackledge with Cowen. Your line is open.

[John Blackledge:]

Great, thanks. A couple questions. Jose, just at any color on the health of the Chinese consumer, and just broader, kind of what you're seeing from the macro side of the house? And then on forward guide. The full year '19 GMV guide is similar to the 1Q at 40%, so implying no deceleration. Is that Stadium Goods impact through the course of the year or are there other factors? And then both Jose and Elliot, you both mentioned with the investments in '19 it would drive stronger growth in '20. Does that, kind of imply perhaps accelerating growth in '20 or just kind of stronger growth then you would have expected before these different investments. Thank you.

[Jose Neves:]

Hi, John. On the Chinese consumer, I think you know what you've seen from the luxury industry you've mixed reports with some brands delivering great growth and great traction in that market and others facing a little bit of headwinds. I think if you have a strong product proposition, in our case also with strong localization, we now have local data center local engineering team, local app full support for payment systems, and few for faster message delivery plus very fast cross border delivery, supporting returns, free returns, et cetera, et cetera. So, once you have those things in place, the market is there and we're absolutely only scratching the surface. So we think China has a lot to deliver. And of course, we are only going to replace Toplife in a few months. There is a technical integration and an investment in the team that is going to run that channel and all of that. So we're not baking in lot of trials [ph] in 2019, but from 2020 onwards, we're absolutely confident that these investments today are the right thing to do to deliver a higher than expected growth in 2020 and beyond.

[John Blackledge:]

And just on that point, really in terms of the forward guidance. So 2019 John absolutely right. The 40% across the full year does include the benefit of Stadium Goods coming on to the group. I'll give you the shake quarter-by-quarter on each call rather than go through it now. But as I say some 40% for Q1 and 40% across the full year. In terms of 2020 and beyond, yes, it's stronger growth and previous expectations. Is it going to be acceleration or not? I'll come back to you on that this time next year to talk you through what it's going to look like.

[Operator:]

Your next question comes from Stephen Ju with Credit Suisse. Your line is open.

[Stephen Ju:]

Okay, thank you. So Jose, are you anticipating more department store partners to be added? Do you think the breath of product selection will improve very much as a result, or is there already a strong overlap relative to the boutiques that are already there? And Elliot, out of curiosity, is there going to be anything idiosyncratic about how the transactions from top like will be flowing through the P&L. Will there be some sort of an affiliate fee paid to JD for traffic or any color there? Thank you.

[Jose Neves:]

Hi. Yes. So on the partner sales, we again - I think we have a very strong proposition to the partners, so with Farfetch they have a partner that absolutely amplifies their reach as an innovation partner. And we are having conversations with a number of department stores in different geographies and yes, I believe we will add more department stores to our supply roster. And I think they - as we are growing, last quarter at over 50% supply will continue to grow at that sort of level. So I'm pleased that supply will see new needs and in dollar value is actually growing slightly faster than demand. So good news on that front. But obviously if you roll out this 40% growth in 2019 and then if you layer 2020 higher than previously expected growth, we will benefit from adding these multi-billion dollar patterns to our network.

[Elliot Jordan:]

And just in terms of the Toplife acquisition, yeah, you are right, it's not a free button. We will obviously be paying commission fee but that's not being disclosed.

[Operator:]

Your next question comes from Ike Boruchow with Wells Fargo. Your line is open.

[Ike Boruchow:]

Hey, good afternoon everyone. Congrats, great quarter. I want to focus on the warranty business. Just Elliot, a couple questions for you. had a couple questions for you. So I think there's a second quarter in a row where your warranty business was up 150% plus. But six months ago, you had talked about maybe 5% of sales is the right way to think about that business. Has your philosophy changed on that. It sounds like your commentary on next year it should continue to ramp. Just trying to understand your philosophy on warranty and how we should be thinking about that going forward. Thanks.

[Jose Neves:]

Hi. This is Joe, it is about one - target into the financials, I just like to touch why we think having a warranty business is absolutely strategic for Farfetch. So what are the two-third? So first of all, we have a wealth of data on what's happening in the marketplace. So we know in terms of brands, products, strengths, product architectures. And the warranty business allows us to react surgically and very, very quickly without necessarily having to wait for our boutique partners or Brand Partners to listen to us and then make the merchandise available and all that. So speed to market is important. The second thing is qualitative. So having a warranty business allows us to do collaborations with brands. For example, we did an off white exclusive collaboration with Browns. Off white is a wholesale, it's is predominantly a wholesale brand. So it's much easier for them to do a warranty deal. I think another great example is a collaboration we have done with Reclamation [ph]. It's just a tool that allows us to be in front of a brand and get excited about an idea and say, you know what we'll buy it and it doesn't need integration. It doesn't need, a complicated and lengthy, negotiation. What this produces is these two things is a halo effect. So although it's only 8% of the offer right now, it definitely - we see it, creating a qualitative excitement, thus halo effect around the rest of the catalog. And this is why we're excited about it. And it's it is growing fast because of that. It's single digit and long term it will be single digits if temporality it's double digits. It will depend on strategic how we want to play it, but long term we will be 90% third party business. But we are when we see these opportunities we are going to leverage these warranty business. It's really interesting and surgical tool for us to create a buzz in the marketplace.

[Operator:]

Your next question comes from Lloyd Walmsley with Deutsche Bank. Your line is open.

[Unidentified Analyst:]

Hi, thanks for taking the questions. This is Kunal for Lloyd. A couple of if I may. One on the predictive shipping and shipping efficiencies that you talked about previously. And with the new warehouse coming up can you talk a bit about give us - an update on the shipping and logistics side of the equation? And second, as we look to how should we kind of think about the take rate? Thanks.

[Elliot Jordan:]

Yeah, great question. So, in terms of sort of fulfillment by Farfetch, this is we think very exciting for our brands and retailers together actually, because we offer faster delivery to customers, they'll be savings in terms of fulfillment costs, which we can pass on to our customers. You saw that across Q4 with an increase in domestic orders, the savings that came through from that we reinvested back into the customer. Obviously with the sellers that creates increase stickiness more services that we can charge them for and obviously a much heavier reliance on Farfetch as a key strategic channel. So also no CapEx, because it's all through the third party logistics providers. And yeah as you say we've got Italy we've got London we've got New Jersey and Shanghai or through third party providers. So assigned to build the network out. You saw some of the benefits of that coming through in Q4 where our fulfillment costs grew slower than overall GMV or our order value that's partly due to the savings coming through from domestic orders as part of this. But I'm not going to really break out massive amounts of detail for Farfetch at this stage. On the take rate, very pleased with the take rate across Q4. we saw the benefit of the holiday campaigns on the media solution start to drive some of that take rate, which obviously is linked to our larger brand partners. The underlying commission rates across our seller base. We moved those up as expected. And of course, we did have the headwind of larger lower commission brands growing in terms of the mix. So that all sort of blends out to being I think up 10 basis points from Q3 to Q4. Longer term, I'm still expecting take rate to head back down towards the 30% number that I've previously talked about over the longer term. Q1 in particular, it'll come down a little bit, because of some moving part through media solution timing and things like that. So we're in a place, where I would expect it to come off the 32% as we move forward.

[Operator:]

[Operator Instructions] Your next question comes from [indiscernible]. Your line is open.

[Unidentified Analyst:]

Thank you for taking my questions and congratulations on strong quarter. I have some follow-up regarding your partnership with China JD.com. First of all, you talk about the competitive landscape there. How are you going to compete with the providers both locally and also internationally? And then two, I understand that this is a huge market. But in the meanwhile there are some current barriers such as high custom duty tax and long custom clearance process. So I'm wondering regarding your investments in the China market. Is it going to be a step-by-step one or you just are confident that all these areas are near-term and you will just to be all in 2019? And lastly, will all with the commission fees that you are paying JD, could you talk about the secular margin profile for the businesses in this emerging market comparing to your existing one? Thank you.

[Jose Neves:]

Thank you. Thank you for all your questions. So I think, we are in 2019 we're planning to complete what we call the premier gateway to luxury in China - to China. And so this means all of the things you mentioned. So we already have a very efficient cross border solution which includes custom clearance and has a lead time of three to five days consistently across the China territory. We also have a domestic fulfillment solution which is fulfillment by Farfetch Shanghai that uses JD Luxury Logistics as our partner. We have a full infrastructure localized in China from data centers, engineers, local app et cetera. And we've acquired CuriosityChina so we have - which had specialists and we're powering mini programs for 80 luxury brands including obviously the Farfetch Mini program. So if you look at these is a complete solution and with the integration of the Farfetch button on the JD apps in the coming months, it will be completed. And from that point onwards, it's completely unique. There's no other Western or Chinese companies that can offer the full 360 exposure to the Chinese market by all channels. Of course, there's the Farfetch JD partnerships. There's also a competing proposition from Alibaba. But in our case we're talking about the single integration both cross border and domestic, direct-to-consumer with support for white label services, especially on WeChat, and this is very, very powerful. So we think it's going to be very compelling for brands and for our consumers. All of these investments are going to be weighting on 2019 but they are the right thing to do because we believe in 2020, our growth in China will accelerate as a consequence of that.

[Elliot Jordan:]

And just briefly touching on the P&L structure, so obviously it's our stock supply that will be sold through to the customers that we now will grow in China on the back of the partnership. So it operates at the same commission structures that we have in terms of take rate with our existing supply base. And you know with this - the cost or the commission that will be paid out really it's just a replacement for our customer acquisition costs. So we see it as hugely beneficial for the P&L.

[Operator:]

There are no further questions at this time. I will now turn the call back over to the presenters.

[Alice Ryder:]

Great. Well, thank you all for joining us today. We look forward to speaking with you next quarter.

[Operator:]

This concludes today's conference call. You may now disconnect.