Hyper-growth ecommerce platform - Farfetch

Some of you might be interested in my notes on FarFetch (FTCH) which are presented below -

The world’s only pure-play ecommerce marketplace for luxury fashion

Founded in 2008 by Jose Neves - a coder/software programmer and retail/boutique owner

The platform is now home to over 1,000 sellers (around 380 brands and over 600 retailers)

Company has signed exclusive agreements with the retailers, so they can’t sell on other e commerce platforms (1-yr contracts)

It took company almost 10 years to convince the luxury brands to sell online; as most are family owned and were worried about brand image (therefore, unlikely to rush off to a new start-up)

Company provides three services - platform/marketplace; technology - software (inventory mgt., payments, analytics, shipments); and also owns London boutiques - Browns

The vast majority of revenue is generated from marketplace commissions - 31% commissions from each third party transaction

The business also generates revenue from fulfillment - but these services are provided at cost and company makes no money

Company also offers a B2B white label program - Farfetch Black & White and owns two Browns luxury boutiques in the UK

Company operates an asset light model as it doesn’t buy the inventory and doesn’t own the logistics network

Company also benefits from network effects as it already has over 2 million users all over the world and carries around 6 million SKUs (10X next biggest player)

Business operates in 190 nations and the website is now available in 12 languages

Over the past 10 years; the company’s annual revenue growth has been north of 50%

The world’s luxury apparel market has consistently grown by 6-7% CAGR for 20 years and this is expected to continue over next decade

The online segment of the luxury market has been growing around 27% per annum and FarFetch is growing at almost twice this pace

At present, the company’s share of the online luxury market is around 4% and this is projected to grow to 8% in 10 years

The company recognises that the bulk of the future growth will come from China so it has bought JD’s Toplife business segment and has integrated that into its own Chinese operations. In return, JD has spent $397 million and acquired a 14% stake in the company. As part of the deal, Toplife now appears on the home page of JD’s main app; giving the company access to 300 million Chinese consumers.

In addition to JD, a few other venture capital funds also own shares in the company and the public float is around 11%

The mgt. team/board is sound with lots of managerial talent from IT/retail fields and Jose Neves owns 14.8% of the company’s shares

According to Bain, the global luxury market will grow to around $500 billion in a decade and online is expected to grab 25% of the pie

If co.'s market share increases to 8% of the online luxury market; then by 2028, its revenue will grow to $8 billion from $0.6 billion in '18

Currently, the company is trading at 13 times TTM revenue and based on the above assumption; if the valuation shrinks to 6 times sales in a decade, company’s market cap could be around $48 billion or 6X from today’s $8 billion valuation (around 20% CAGR)

FTCH is a recent IPO and the public float is pretty small

Given the above factors, a few days ago I’ve invested in this high-growth ecommerce platform.

All the best!

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Color me interested. Feel like i should have heard of this one already. Trade war scared me out of JD, but i am in bzun and there are some similarities.

Thanks for bringing this one up!

Dreamer

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You are welcome Dreamer.

I only came across this a few days ago, seems like a great business with a visionary CEO.

Besides FTCH, I also own AMZN BABA BZUN MELI SHOP in the space.

Best,

GM

interesting company GM.
I am a bit surprised on the claim of the only online luxury market place.
May be it is right in some sense… however, I thought I have come across multiple sites at-least do a flash sale (may be a private company) and or regular market place (there is a Canadian company) as well. I will dig out my notes and see if I can get those names.

BTW - fully agree, good quality market place business are gold mines.
I have had success with AMZN, MELI, ETSY in the past. Still hold MELI for may be five years now… and SHOP, SQ etc.
Been in and out of BZUN… may get back in soon.

An industrial marketplace to consider is RBA. It is a very slow grower but near monopoly holding long term could be quite interesting… when the SAAS / cloud space get a bit mature, I may get back into this one.

The world’s only pure-play ecommerce marketplace for luxury fashion

I’m amazed that luxury fashion is fast growing. It certainly doesn’t seem to be here in the US. In New York City my wife and I have often walked down parts of Madison Avenue and Fifth Avenue, and looked in the windows of the luxury goods stores, and they are always empty. There are always 3 or 4 elegantly dressed sales people looking out the window, or behind the counters, but NO customers. We have speculated how they can afford to stay open, as the physical space they occupy is often quite large. We guess that maybe they only need to sell a few wildly overpriced items a week, but that won’t cover even their rent. We finally decided that having an address on Fifth Avenue or Madison Avenue is a form of advertising, and comes out of their advertising budget. Just wondering…

Saul

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I’m amazed that luxury fashion is fast growing. It certainly doesn’t seem to be here in the US.

It is growing much more in China, which I believe FarFetch had admitted. The transition to online sales may also grow faster than the market in general, though I don’t see how BABA doesn’t take its bite of the apple there.

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Nilvest,

Agreed, dominant marketplaces are gold mines, wide moats due to scale and network effects.

BABA has tied up with Net-a-Porter which was acquired by Richemont LVMH, so it is present in this space.

FTCH has a deep bench, great CEO and has tied up with JD.

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Saul,

You are spot on, luxury retail stores over here in Hong Kong always appear empty too but they still exist so brands obviously find them valuable.

Total global spend on luxury fashion is growing by 6-7% annually, but online is growing by 27% and FTCH hss grown its top line by more than 50% over the past decade! So, almost twice the growth rate of online, which is impressive in my opinion.

Congrats on your 1st quarter performance!

All the best.

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BABA has partnered with Net-a-Porter (now owned by Richemont LVMH), but the market is huge and growing rapidly.

GM - This is actually interesting. It’s easy to think that luxury is saturated when in the West and in Asia with every man woman and child running around with LV handbags and luxury branded Chanel earings and Swiss watches it gets tedious, but… in Asia where population growth, wealth creation and middle income growth are monumental right now together with high and growing digital penetration rates this is probably a no brainer. Luxury also very often defies recessions.

I’d like to see how this competes with the Shopify platform and native ecommerce plays within instagram etc as well as other luxury purpose built plays like Net a Porter and ASOS and some of the Chinese luxury plays but it seems like reasonable valued niche player with potential for growth even at an $8bn price tag.

Thanks for bringing this to the board and hope you still stick around on this board in the future.

Ant

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