Farfetch files for IPO
Head of Equity Strategy, Saxo Bank Group
Farfetch is a technology platform for the global luxury fashion industry that connects brands, retailers, and consumers in what the company characterises as a fragmented market. The company was founded 10 years ago and has established an interesting position in the global fashion industry, worth $307 billion in 2017 and expected to grow to $446bn by 2025 according to Bain. The majority of revenue is generated through the Farfetch Marketplace connecting around 2.3m consumers with 980 luxury sellers.
As with many other online retailers, Farfetch has acquired a foothold in the physical world by acquiring Browns, a British fashion and luxury goods boutique, in May 2015. Browns operates two retail fashion boutiques in London. The company has 3,000 employees with two-thirds of its workforce employed in Technology & Product and Operations.
As of December 2017 the company had 936,000 active customers, up 44% year-on-year,and revenue was $386m in 2017, up 60% y/y. According to Bain, the luxury market grew 6% annualised since 2010 with online luxury fashion growing 27% annualised in the same period. The online market share in luxury fashion is around 9% and thus far lower than most other retail markets.
Applications: the core engine of the business with Farfetch Marketplace as the largest application built on the platform connecting consumers and luxury sellers. Farfetch Black & White Solutions is a white-label e-commerce offering.
Services: offers product presentation capabilities, demand generation through Farfetch’s marketing engine, secure multi-payment processing, and supply chain management.
Data: the company accesses rich data from luxury sellers on the platform to better understand marketing campaigns, fashion trends, and consumer behaviour. Farfetch has 631 engineers and data scientists working on the data solution.
As the financial statements below show, the company is growing very fast by investing heavily in infrastructure and technology. The opposite side of this is an operating loss of $94.5m in 2017 that is likely to increase in 2018 based on the numbers available as of June 30, 2018. If Farfetch follows the same trajectory as Zalando then profitability will increasingly be a priority as a publicly traded company. One metric that stands out and is likely an indicator of a sticky business model is the number of orders/active customers, which has increased from 2015 to 2017 on top of a higher average purchase value per order. This is an indication of a healthy ecosystem.
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