Morningstar | Farfetch Reports Continued Market Share Gains but Widening Losses Despite Leverage on G&A Costs
We are maintaining our $17.10Â fair value estimate for no-moat Farfetch after the company reported first-quarter results. Gross merchandise value increased 43%, continuing to grow faster than the online luxury market. Revenue increased 39% in the quarter with platform service revenue up 43% (we forecast around a 50% revenue increase for the year). Platform fulfillment revenue grew 23% as orders qualifying for free shipping increased, damping overall revenue growth.Active customer growth continued to be very strong at 64%, bringing the total active customer number to 1.7 million. However, this number was positively affected by the acquisition of Stadium Goods.
The adjusted EBITDA loss was $30 million, widening 28% from year-ago levels, as the company continues to invest in technology (45% year-on-year growth in expense). General and administrative expenses provided some positive leverage, increasing 20% in the quarter (42.3% of adjusted revenue in the first quarter of 2019 compared with 50% in the first quarter of 2018). We expect those to continue to scale over time as the business grows, leading to eventual profitability. We continue to expect operating margin in excess of 17% by the end of our 10-year explicit forecast period.
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