Farfetch Ltd (FTCH) 2018 Q4 法說會逐字稿

Good afternoon. My name is Shauntelle, and I will be your conference operator today. At this time, I would like to welcome everyone to Farfetch Fourth Quarter 2018 Results Conference Call. (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.

Thank you, Shauntelle. Hello, and welcome to Farfetch's Fourth Quarter 2018 Conference Call. Joining me today to discuss our results are José 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 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 Factor 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 José.

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'd like to call Chapter 1, foundation for incredible opportunities ahead of us over the next decade, our Chapter 2.

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 top line performance underscores our unwavering execution of our growth strategy. Farfetch is growing faster than any other company in luxury that's twice the pace of the online luxury market and above our expectations even in the face of recent macroeconomic uncertainty.

Our Chapter 2 strategy has 4 pillars: growing our consumer base and improving consumer economics; increasing product supply and our luxury seller base; 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've begun advancing through Chapter 2 at increased speeds.

I'll now outline our significant milestones against our 4 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 6 months LTV and payback continues to be less than 6 months, even as we decided to ramp up in terms of customer acquisition and had faster-than-expected year-on-year GMV growth.

This 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 3 of our geographic areas, the Americas, 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've 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 this can no longer be done via physical store networks, 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 $50 million in 2019 will include any costs on the phasing in of Farfetch as the luxury channel on the Level 1 of the JD app, boosting of our existing fulfillment by Farfetch capabilities in Shanghai, expansion of our China team to accommodate the new channel as well as brand awareness and demand generation investments.

We expect these extra P&L investments 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 faster 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. The 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 2 new partners 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 sportswear 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 where we're out of 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, has been firing on all cylinders and picking up momentum throughout the year to close out 2018 with 6 new brand launches in Q4 to end the year with 17 total clients. Recent sites launched by the team includes 2 LVMH brands, JW Anderson and Emilio Pucci; Kering affiliate, Altuzarra, and Acne in China.

And like the most common 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 JW Anderson is an example of a brand we helped launch in China from day 1, which highlights its unique Black & 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 their global e-commerce sites, and we'll be working throughout 2019 towards the targeted go-live date in 2020. We are thrilled with the acceleration of our enterprise offering represented by the additions of Harrods and Chanel, our first multibillion-dollar luxury enterprise clients.

These landmark deals and successes also represent an acceleration of our Chapter 2 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 units 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 ecosystem to build their own branded digital businesses.

Current clients include Harrods, Chanel, both Kering and LVMH brands; and in China, Ralph Lauren, Coach, Montclair, Hugo Boss, among others. We now operate websites of 17 luxury companies, which has programs for another 80, and innovation partnerships with both Chanel and Thom Browne.

In 2019, we will continue to invest in our technology to deliver the FPS vision. And following the successes with Chanel, the first 2 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 plans. One important point to also note is that all the technology we build is developed at 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 this, we've 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 the U.K., and has shown excellent results so far. While it's still early days for the program, we are 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 the global level. We have been phasing in the program since fall and expect the rollout 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 introduces 5 tiers of benefits to all of our customers and delineates a path to the highest tier, private clients.

By enabling our customers to move up from bronze to silver to gold to platinum and ultimately to private client, we vastly enlarged the customer base who can take advantage of our special benefits and through their thoughts like repeat purchase behavior across all groups as opposed to just one top tier. Benefits range from welcome gifts, early access to new releases, exclusive events, free global shipping, expanded returns, exclusive access to certain brands and collections, their own personal stylist and fashion concierge, among others.

I am very excited about the launch of Access. And whilst this represents an investment in order 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 costs, increase retention and spend per customer, ultimately paying off against the upfront order contribution investments.

And with that, I'll turn it over to Elliot to go over the Q4 results in more detail.

Thank you, José, 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 rate of 58%.

Our stronger-than-expected 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 up 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-on-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 & White clients doubling Q4 white-label GMV year-on-year.

Our first-party GMV, where we purchased stock at wholesale and sell across our platform, grew over 200% year-on-year as we continue 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 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 rate highlights the level of value-added services we are providing to our sellers on our 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 booth and management fees, which has resulted in blended take rates remaining at similar levels to Q4 '17 and Q3 2018.

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-up 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 1P 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 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 the 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 longer-term outlook with our higher take rate and GMV beat across Q4 allowing for this investment.

Moving to our other expense lines. We have seen very good leverage within the general and administrative cost base at 33% of adjusted revenue in Q4 '18 versus 52% in Q4 '17. The strong growth in revenue, whilst controlling the growth of our platform services, account management, customer service and corporate costs, has been the key factor 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 tech 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 at $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 is 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-settled 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 decreases over the next 2 years as these legacy cash-settled options vest into cash. The slight step-up in depreciation and amortization quarter-on-quarter reflects the increase in capitalized development costs in relation to the long-term infrastructure and assets we are developing. As a reminder, we amortize these assets over a 3-year time period.

The result in Q4 loss after tax was $10 million and loss per share of $0.03. The full year 2018 loss after tax was $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 marketplace 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, with Chanel and Harrods as anchor clients, we are expecting B2B revenues to accelerate in 2020 with continued investment in our platform technology ahead of the state.

We believe the acquisition of Toplife and strengthening relationship with JD creates the much needed Premier Luxury Gateway to China and positions Farfetch like no other Western company to capture increasing share of spend from the Chinese luxury customer. The acquisition of Stadium Goods positions Farfetch to capture a 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 investment, has significant growth potential. I should note that media reports of $100 million GMV for Stadium in 2017 were 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 a platform order contribution of around $260 million to $280 million, growth of around 40% year-on-year. This targeted order contribution incorporates the increased upfront investment in 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 José 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'll 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 rechart the near-term route to profitability, we believe additional P&L investment now will deliver stronger GMV growth in 2020 and beyond and 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 ASC 642, which I'm sure you're all familiar with. We estimate a 2% increase to adjusted EBITDA margins as a result of adopting this standard as circa $17 million of rent will shift down to depreciation and net 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 AOV position as a result of the currently stronger U.S. dollar versus Q1 in 2018. There will also be a small impact from the lower AOV 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 develops.

José?

Thank you, Elliot. Wrapping up, Farfetch had a blockbuster 2018, not only capturing market share at outstanding pace but also cementing several landmark deals in Q4 and Q1 2019 and paving the way for accelerating our Chapter 2 strategy.

To mention the most recent, the acquisition of Toplife and development of the luxury gateway to China; the acquisition of Stadium Goods entering the premium sneaker retail category; the success in attracting multibillion dollar enterprise clients, such as Harrods and Chanel, leading to the launch of our Farfetch platform solution strategy; and advances 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 2. 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 this $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 2 strategy means that we will reinvest the leverage and efficiencies 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 committed to executing on all of these initiatives in 2019, while slightly improving our adjusted EBITDA margin 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 said, 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.

And we should open for questions now?

Operator, can you please open it up for questions?

(Operator Instructions) Your first question comes from the Doug Anmuth with JPMorgan.

I have 2. First, José, just wanted to ask you about the department store strategy, you've obviously had some good progress here recently with Harvey Nichols on the Marketplace and now Harrods on Black & 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 in the Marketplace over time? And then second, for Elliot, can you talk a little bit more about the Stadium Goods timing and contribution, anything you can quantify there for 2019?

Thanks, Doug. Great speaking to you. I think, first of all, I think we have an extraordinary proposition for department stores. We -- we're 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 does is, in fact, amplifying their brand and their incredible offering to currently 1.4 million customers in all parts 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 multibillion-dollar businesses, so it's a relatively slower sales 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 where department stores as a key area of our supply.

And just on Stadium Goods, first and foremost, absolutely delighted to have Stadium Goods now within the Farfetch family. It's an absolutely fantastic team. They've got their sights firmly set on the $70 billion sportswear market. As we talked about last time, it's a very fast-growing category within Farfetch in the business itself. And they've got a unique skill set to really allow us to accelerate within their offering. First and foremost, we'll run standalone initially. We've got a bit of technology development, as José said before, in terms of full integration with the Farfetch platform. But we are absolutely getting behind that 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 data set that they've got to identify the hot lines from the different brands that will be coming on, and we can invest in that product and sell it through very, very quickly. Their average holding on these hot property lines is very quick indeed. So we can turn over that capital very quickly. But I think overall, we're not going to breakout 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've guided to as well, as we embed that within the business. I note, the AOV's a little bit lower so that will take a little bit off our overall AOV and the contribution of the basket there was a little bit lower at this moment as well, so that will take a little bit off the order contribution as well. So it's all within the overall guidance, Doug.

Your next question comes from Eric Sheridan with UBS.

Maybe 2 on GMV. One, can you characterize any of the headwinds or tailwinds you saw in the upside to GMV in Q4 and how it's informing your view about 2019 due to the macro environment that you see in certain regions of the world? And the second part of the question is, how much of the upside in GMV you're seeing is through your own efforts? And can you give us a bit of color about how those efforts are bearing fruit in terms of driving more demand, more velocity of shopping onto the platform?

Hi, Eric. I think we -- we're rolling, 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 feed all around the world and a real global opportunity. And of course, we all know the macro uncertainties in several regions of the world, but we're really focused on the secular opportunity here. Very low online penetration, very fast growth of the digital channel. In the case of China, driving these markets, driving 85% of the growth in the luxury industry. And we're focused -- we're focusing the teams on really capturing this 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 China, very, very satisfied, very happy with the performance across the different regions and business units.

Your next question comes from Louise Singlehurst with Goldman Sachs.

I'm going to start off with JD, if I may please. In terms of the partnership, can you just give me a bit more detail about how it's actually structured, obviously, is it fully owned by Farfetch China? Do the logistics solution change under the new agreement? And I don't think I've ever seen any numbers of users of Toplife, be a huge number on the JD platform but I don't know if there's any color that you can give around the actual user base of Toplife and what that brings to Farfetch? And then my second question, for Elliot, please, if there's any color on the cohort information, and particularly as it kind of progressed through 2018? José, you kindly mentioned that the payback remains below 6 months. But I wonder if -- with more promotional activity towards the end of the year, how that impacts the LTV and how much you direct in terms of investment and spend towards acquiring that customer?

Hi, Louise, great talking to you. Regarding Toplife and JD, first of all, I'm extremely, extremely happy with our Chinese partners. We've signed the first JV 1.5 years ago. It's been spectacular, actually, in terms of the speed of integration. We are now using JV Logistics to power the Fulfilment by Farfetch service in China. We effectively integrated with their data capabilities in terms of leveraging JD, and which had data for demand generation. We integrated JD Pay on the checkout and other services. And I think it's really building on that very successful partnership that both parties saw it as a win-win to really merge Toplife into Farfetch. This effectively means that Farfetch will have the most prominent position in the JD app, which has, as you know, 300 million active users. And this closes the circle. Farfetch is very unique in that with one single integration, if you have any concession on Farfetch, you'll arrive in China, and you'll arrive 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 store managed by us through CuriosityChina and now you'll have the potential position on -- a button on an app used by 300 million shoppers in China. This is all done via one single technical integration where you leverage your capital, your prices, you can do cross-border into China using the Farfetch platform, you can also do domestic levers in China. This is an incredible gateway that we're creating to a market that is quite frankly very hard to crack. Very, very few luxury brands have any form of presence in China, as you know. So we're very, very excited. And we think the Farfetch supply, which includes 3,000 designers, which are supplied by 1,000 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 JD 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 customer proposition is not there. What we offer the Chinese is real-time access to the world of fashion, these cross-border or domestics. So we're very, very excited with it.

And, Louise, hi, just coming to -- on the cohort. As José 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 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, Access is driving part of that, it's not fully rolled out, but we have got clients on Access. We're seeing the engagement levels for those different categories much higher than those not on Access. We've actually got a substantial amount of extra spend versus the control group, not on Access during the rollout, so we -- that's why we decided to accelerate it because we saw 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.

Your next question comes from John Blackledge with Cowen.

A couple of questions. José, just 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 of 40%, so implying no deceleration. Is that Stadium Goods impact through the course of the year or are there other factors? And then both José 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 than you would have expected before these different investments?

Hi, John. On the Chinese consumer, I think what we've seen from the luxury industry is mixed reports with some brands delivering great growth and great traction in that market and others facing a little bit of headwind. I think if you have a strong product proposition, in our case also a strong localization, we now have local data center, local engineering team, local app, full support for payment systems, superfast domestic delivery plus very fast cross-border deliveries supporting returns -- free returns, et cetera, et cetera. So once you have those things in place, the market is selling. 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's a technical integration and then investment in the team that is going to run that channel and all of that. So we're not baking in a lot of upside 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.

And just on that point really in terms of the forward guidance. So 2019, John, absolutely, you're right. The 40% across the full year does include the benefit of Stadium Goods coming on to the group. I'll give you the shape quarter-by-quarter on each call rather than go through it now. But as I say, it's 40% for Q1 and 40% across the full year. In terms of 2020 and beyond, yes, it's stronger growth than 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.

Your next question comes from Stephen Ju from Crédit Suisse.

So, José, are you anticipating more department store partners to be added? Do you think the breadth 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 then, Elliot, just out of curiosity, is there going to be anything idiosyncratic about how the transactions from Toplife 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?

Hi, yes. So on department stores, we -- again, I think we have a very strong proposition to department stores. With Farfetch, they have a partner that absolutely amplifies their reach and an innovation partner. And we are having conversations with a number of department stores in different geographies. And yes, I believe we will add department -- 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, both in units 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 multibillion-dollar partners through -- to our network.

And just in terms of the Toplife acquisition, yes, you're right. There's -- it's not a free button. We'll obviously, be paying commission fee but that's not been disclosed.

Your next question comes from Ike Boruchow with Wells Fargo.

I want to focus on the 1P business. Just, Elliot, a couple of questions for you. So I think it's the second quarter in a row where your 1P business was up 150%-plus. About 6 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 you're commentary on next year is it should continue to ramp. Just trying to understand your philosophy on 1P and how we should be thinking about that going forward.

Hi, this is José. In terms of 1P business before getting to the financials. I'd just like to touch on why we think having a 1P business is absolutely strategic for Farfetch. So what does it do for us? So first of all, we have a wealth of data on what's happening in the Marketplace. So we know in terms of range, product, strength, price architectures, and the 1P 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 of that. So speed to market is important. The second thing is qualitative. So having a 1P 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 predominately a wholesale brand so it's much easier for them to do a 1P deal. I think another great example is the collaboration we've done with Reformation. 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 inspiration, it doesn't need a complicated and lengthy negotiation. What it produces is 2 things. It's a halo effect. So although it's only 8% of the offer right now, it definitely, we see it creating a qualitive, excitement buzz, halo effect around the rest of the catalog. And this is why we're excited about it. It is growing fast because of that. It's on single digits, and long term it will be single digits. It's -- temporarily it hits double digits, it will depend on strategics how we want to play it. But long term, we will be 90%-plus third-party business. But we are -- when we see these opportunities, we are going to leverage this 1P business, it's a really interesting surgical tool for us to create a buzz in the Marketplace.

Your next question comes from Lloyd Walmsley with Deutsche Bank.

This is Kunal for Lloyd. A couple if I may. One on the predictive shipping and the shipping efficiencies that you talked about previously and with the new warehouse coming up in Rome. Can you take a bit about -- give us an update on the shipping and logistics side of the equation. And second, as we look to 2019, how should we kind of think about the take rates?

Hi. Yes, great questions. So in terms of Fulfilment by Farfetch, this is we think, very exciting for our brands and retailers together actually because we had to offer faster delivery to customers, there'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 it creates increased stickiness, more services that we can charge them for and, obviously, a much heavier reliance on Farfetch as a key strategic channel. It's also no CapEx because it's all through the third-party logistics providers. And as you say, we've got Italy, we've got London, we've got New Jersey and Shanghai all through third-party providers. So starting 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 over 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 solutions start to drive some of that take rate, which obviously is linked to our larger brand partners. The underlying commission rates across our cellar 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 blended out to being I think, up 10 basis points from Q3 to Q4. Longer term, I'm still expecting the take rate to head back down towards the 30% number that I've previously talked about over the longer term. Q1 in particular, it will come down a little bit because of some moving parts through media solution timing and things like that, so we are in a place where I would expect it to come off the 32% as we move forward.

(Operator Instructions) Your next question comes from Ella Ji with China Renaissance.

I have some follow-up regarding your partnership with China JD.com. First of all with -- can you talk about the competitive landscape there. How are you going to compete with the providers, both locally and also internationally? And then, two, understand that this is a huge market, but in the meanwhile, there were some current barriers, such as high custom duty tax and a long custom clearance process. So I'm wondering, regarding your investments in the China market, is that going to be a step-by-step one or are you just confident that all these areas are near term and you will just be all-in, in 2019? And lastly, we saw the -- 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 for 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 3 to 5 days consistently across the China territory. We also have a domestic fulfillment solution, which is Fulfilment by Farfetch in 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 WeChat specialties and we're powering mini programs for 80 luxury brands, including, obviously, the Farfetch mini program. So if you look at this, it is a complete solution and with the integration of the Farfetch button on the JD app in the coming months then it will be completed. And from that point onwards, it's completely unique that no other Western or Chinese company that can offer these full 360 exposure to the Chinese market via all channels. Of course, as the Farfetch JD partnership, there's also a competing proposition from Alibaba. But in our case, we are talking about the single integration, both cross-border and domestic, direct to consumer with support for white-label services, and 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.

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 with this -- the cost or the commission that we'll be paying out, really is just a replacement for our customer acquisition costs. So we see it as hugely beneficial for the P&L.

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

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

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