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Farfetch Limited (NYSE:FTCH)
Q4 2019 Earnings Call
Feb 27, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, my name is David, and I will be your conference operator today. At this time, I would like to welcome everyone to the Farfetch Fourth Quarter 2019 Results Conference Call. [Operator Instructions]

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 -- Vice President Investor Relations

Thank you. Hello, and welcome to Farfetch's Fourth Quarter and Full-year 2019 Conference Call. Joining me today to discuss our results are Jose Neves, our founder, co-chair, and chief executive officer; and Elliot Jordan, our chief financial officer. efore 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 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 them. For a discussion of some of the risk factors that could cause actual results to differ, please see the Risk Factors section of our annual report Form 20-F, which was filed with the SEC on March 1, 2019, and our annual report on Form 20-F for 2019, to be filed with the SEC. 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 in the slide presentation, both of which are available on our website at farfetchinvestors.com. Finally, we point out the heightened market uncertainty created recently by the spread of the novel coronavirus, or COVID-19, which is affecting many companies. It is possible that our performance and projections discussed on this call could be impacted by the disruptions this virus is causing in China and, as we are learning, elsewhere.

And now, I'd like to turn the call over to Jose.

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

Thank you, Alice, and thank you all for joining us today. I am very pleased to be speaking to you about our results for 2019, which was a landmark year for Farfetch and ended with an extraordinary, record-setting Q4, where we beat expectations in terms of top line growth, order contribution margin, and adjusted EBITDA. Twenty-nineteen marked the first year of our second impacted as a company, which I like to call chapter two, and a year in which we seized incredible opportunities made possible by the strong foundation we built throughout chapter one. At the group level, including our physical stores and the brand platform activities following the acquisition of New Guards Group, or New Guards last August, we generated a record $2.1 billion of gross merchandise value, or GMV, for the year. As our GMV is net of returns, it is comparable to retailers' revenues, this makes Farfetch the largest global online destination for in-season luxury for the first year in our history. In 2019, we continued to capture market share, and as a result, our digital platform GMV for the full year was just under $2 billion. This represents an all-time annual high for Farfetch and a 2019 growth rate of 40%, which means we grew almost twice as fast as the online luxury industry. Moreover, our market share gain was truly global, with GMV from each of our three marketplace regions, EMEA, APAC, and the Americas, growing faster than the online luxury industry. At the same time, we maintained a strong focus toward our path to profitability and delivered more than 500 basis points of adjusted EBITDA margin improvements over the prior year, reflecting our increased scale and efficiencies, as well as New Guards' profitable operations.

Our strong 2019 results highlight our execution of the four pillars of our chapter two strategy, which were outlined at the time of our IPO. As a reminder, those pillars were, one, improving customer economics and growing our consumer base; two, increasing product supply in our luxury seller base; three, investing in new technologies and innovation; and four, building the Farfetch brand. Turning to the first pillar, we continued to attract and retain an incredibly valuable consumer base in 2019, who exhibited average order values, or AOVs, of $608 and LTV-to-CAC paybacks of less than six months. These strong metrics underpinned our invests in expanding and engaging our consumer base throughout the year, as we grew active consumers 50%, to end the year with 2.1 million. We also enhanced our value proposition for our consumers with the spring 2019 rollout of Access, our spend-based loyalty program. And I am pleased to report that in less than one year, we have more than one million members across the five tiers, ranging from bronze to private clients, who are already demonstrating the benefits of the program. Compared to the control group, we are finding Access members are significantly more engaged and shop more frequently, at higher AOVs. To date, the results point to an incredible 23% at least on gross transaction values, on average, for Access members. As such, we will continue to roll out the program to more customers, as well as make additional invests in the technology, experience, and benefits to drive further uplift in 2020.

The idea behind Access is to connect with the private client of today and tomorrow. Private client represents our highest-spending and most engaged consumer segment. During the year, we expanded our resources to serve this fast growing and highly available customer, who will now have over 100 stylists servicing our VIPs in 20 cities around the world. We also continued to see traction behind Fashion Concierge, our conversational commerce solution, which is part of our offering to private clients. This unique business has generated some of Farfetch's highest-value transactions. And in January, Fashion Concierge broke the record of the highest single sale on our marketplace, with $1 million of fine jewelry and watches sold to a private client customer. Now on to the second pillar, increasing product supply and our luxury seller base. Our strong top line performance highlights our success in leveraging our global platform to go after the $100 billion opportunity that we see in online luxury. And with luxury brands increasingly moving to reduce wholesale in favor of direct-to-consumer distribution strategies, our unique e-concession model has positioned Farfetch as the multi-brand digital partner of choice. As a result, our brand relationships strengthened in 2019, and we nearly doubled the rate of direct brand signings, with e-concessions on the Farfetch Marketplace accelerating to grow almost 40%, to more than 500 at year end.

Overall, supply has never been better. In Q4, we offered Farfetch Marketplace consumers a record number of SKUs across our highest-ever number of brands, over 3,400. At the start of the year, we already had the largest selection of luxury online, and with 100% three-year retention of our top 100 brands and over 1,200 total supply partners, it has only gone from strength to strength. And for our third pillar, investing in new technologies and innovation, in addition to operating a geo-distributive platform at scale and supporting the demands of our growing transaction levels, our tech team has been ahead of development and innovation in 2019. We launched many products and features. We improved the experience for our customers, partners, and sellers, including Inspire, an in-house-developed recommendations engine, which applies AI and machine learning technology to our proprietary customer preference data to improve the search and discovery experience for our consumers. We tested Inspire for over 12 months against best-in-class third-party AI algorithms, and ours is now winning, meaning we are building a proprietary competitive advantage in AI-driven personalization that we're using across all our customer search finds, web, mobile, and emails. Towards our Augmented Retail initiative, we successfully launched the Store of the Future pilot for Chanel's Harrods Paris selection boutique. And based on the extraordinary impact delivered on the customer experience, in 2020 we are planning to expand the rollout to additional Chanel boutiques.

A key 2019 initiative has been behind developing features and services to support the launch of Harrods' global e-commerce solution, and I am ecstatic to report that as of yesterday, harrods.com is live on the Farfetch platform. We are thrilled to be providing them all the features of the Farfetch platform, including e-Concessions, global logistics, including to China, and e-commerce management, combined with operations and technical support to power Harrods' global digital strategy in the coming years. As a result, Farfetch is now enabling Harrods' offering of its extensive product catalogue, including categories which are important to department stores, such as beauty, food and wine, and homeware. In addition to signing Harrods in 2019, we saw strong momentum behind Farfetch Platform Solutions during the year. Not only did our CuriosityChina unit power the WeChat presence for 80-plus global luxury brands, but FPS also expanded their launch partners to 18 by the end of the year, including three e-commerce sites for LVMH brands. To date in 2020, in addition to Harrods, FPS also launched two sites for New Guards brands, Off-White and Unravel, bringing FPS-operated sites to 21. We're pleased to see that our technology investments are paying off. And finally, turning to our fourth pillar, building the Farfetch brand. Building love for the Farfetch brand has been one of our biggest opportunities and was an area of greater focus in 2019. In March, we launched Farfetch Communities, which showcases bespoke editorial content on the marketplace to inspire and help consumers find the things they love. Not only did it enhance our consumer experience, but in the case of Gucci's Open House series, it was an opportunity for a longer-term content collaboration to highlight their collections from the perspective of the global Farfetch community over an eight-month campaign on the Farfetch Marketplace.

Last week, we were also excited to announce Farfetch BEAT, dubbed as the future of drops by the media, a new program which will offer drops from the most coveted brands and products every single week at a global scale via the Farfetch app. We are thrilled to have some of our top brands partnering with us on Farfetch BEAT, as well as New Guards brands and Stadium Goods, and we look forward to offering some incredibly popular collabs. To give you a sense of the potential from these launches, when the Off-White, Nike, and Jordan five dropped earlier this month, it generated an incredible 60 million hits per minute across the platform at its peak, beating our highest traffic peak on Black Friday in 2019, and crucially, with zero digital marketing spend. I'd now like to update you on the New Guards acquisition, as we just passed the first six-months milestone. I am extremely happy with the New Guards contributions toward the core Farfetch business already, and of course, with the strong performance of our new connected wholesale segment, the brand platform. In the second half of 2019, the New Guards portfolio of brands, in aggregate, sold more than any other single brand on Farfetch and powered some of the hottest exclusive drops, all of which squarely advanced our strategic goals of building our Farfetch brand, accelerating our Marketplace flywheel, and boosting demand with free traffic. All of these factors contributed to the outstanding performance of Farfetch's core business in Q3 and Q4. Additionally, brands have been incredibly excited about the prospect of a combined Farfetch and New Guards, driving highly desirable luxury consumers to our platform. And today, brand relationships are healthier than ever before, with 49 brands directly joining the Marketplace since August. Finally, from a financial standpoint, our results clearly indicate New Guards is extremely capital efficient and accretive with respect to free cash flow and profitability, with minimal inventory risk.

A huge thank-you to our teams who worked relentlessly to integrate New Guards. In the short span of three months post-acquisition, we leveraged our fulfilment by Farfetch infrastructure to start supplying New Guards brands direct to our consumers, or DTC, and powered their brand dotcom businesses. Given that New Guards drove $36 million of digital sales in Q4 alone, of which only approximately 20% was DTC, this gives you an idea of the enormous potential of the New Guards portfolio, once the DTC channel is fully optimized. Clearly, the New Guards acquisition has already proven to be the great strategic feat for the core Farfetch business that we expected it to be, and in fact, it is surpassing my expectations in every regard. Turning now to the novel coronavirus, which is at the forefront of people's minds, we are monitoring the evolving situation carefully, and naturally, our priority has been the health and wellbeing of all our teams. From a trading perspective, currently, we have not seen a material impact, including in China, Korea, Japan, and Italy, with February sales in these markets growing year over year above the marketplace average. Given the current contours of the situation, we believe our distributive platform model is particularly well suited to weather this issue. Our access to more than $3 billion of third-party inventory, sitting in thousands of store points in the 50-plus countries where we source supply, and the unique ability to tap into it to service millions of customers in 190 countries through multiple possible combinations of shipping routes and logistics providers makes the Farfetch model particularly resilient to this type of situation, at least in its current shape.

The current trading trends are confirming this so far, and make us confident in the resilience of our business and our forecast for full-year 2020. Notwithstanding this, as Alice mentioned, the situation remains uncertain, and we will closely monitor it as it evolves. Specifically in relation to China, we continue to see significant opportunity in this market, whose consumer base, according to Bain, is expected to represent about 45% of the luxury market sales by 2025, with half of purchases being made in mainland China. For the past five years, we have been building out our capabilities in this key market, investing in a localized tech stake, setting up logistics and operations, and acquiring our CuriosityChina unit in 2018 ad Toplife in 2019. We are very pleased to see our China market GMV growing faster than the rest of our marketplace in Q4. This strong performance was driven by our own channels, including the Farfetch app and website, which together represent the vast majority of our China sales, which more than compensated for the slower than expected ramp that we are seeing from the JV channel. Overall, our investments in China are yielding strong results and have established Farfetch as the premier luxury gateway to China, where we are committed to being the partner of choice with our one-stop integrated solution for helping luxury brands develop and implement a digital strategy to crack the international market.

Turning now to Elliot to discuss our financial results and outlook.

Elliot Jordan -- Chief Financial Officer

Thank you Jose, and hello listeners. I am very pleased to be sharing with you the financial results for Q4 2019, which represent another excellent quarter for Farfetch. We have beaten our own expectations of growth and profitability, thanks to an acceleration across the marketplace within the digital platform, significant revenue and profit contribution from the brand platform, as well as continued operating leverage across the group. This strong finish to the year means our total GMV for 2019 was $2.1 billion, up 52% year on year, with the digital platform growing at 40% year on year. In the fourth quarter, we delivered group GMV of $740 million, 59% above Q4 last year. The digital platform delivered $629 million of this GMV, growing 36% year on year, or 37% at constant currency, and delivered a sequential improvement in order contribution, from 31.3% to 32%. This is an outstanding performance, underpinned by strong results from the Farfetch Marketplace, which forms 90% of the digital platform GMV. Q4 revenue on the digital platform grew 37% year on year to $226 million, with third-party take rate of 30.4% and an increase in our mix of first-party sales to 12% of GMV, of which 1% is first-party original. Our fulfilment revenue grew 75% year on year, reflecting a significant reduction in funded promotions, which are offset against this revenue stream. As a percentage of GMV, our spend on promotions was the lowest it has been in six quarters. With fewer promotions quarter on quarter, our digital platform gross profit margin ticked up 135 basis points versus Q3 2019. Fewer promotions also helped support year-over-year gross margins, although this benefit was more than offset by the mix impact of our first-party business, which is currently delivering a gross margin below our medium-term expectations.

We continue to engage with customers across a broad range of channels, with compelling content contributing to organic traffic, optimized search engine marketing attracting new customers, and a strong social presence promoting the Farfetch brand. We also focused our attention on driving at downloads. Overall, our demand generation expense as a percentage of GMV is stable quarter on quarter at 8%. The results of this activity are pleasing, with 180,000 new customers in the quarter, higher app engagement, a spike in retention metrics, and significant GMV uplift via our Access loyalty program. All spend on promotions with digital channels is aligned to our customer acquisition and engagement strategy and deployed within strict day-to-day cost-of-sales targets and monthly lifetime value to customer acquisition cost payback ratios. The result is a healthy base of 2.1 million active consumers, payback of CAC within six months of acquisition, with the Q2 2019 cohort now profitable, and improving lifetime values of previous cohorts measured over a 24-month time period. The brand platform delivered $102 million of GMV and connected wholesale revenue, and contributed $48 million of gross profit at a gross margin of 47%. This gross margin is now net of licensing fees that are paid to brand owners which, following the completion of our New Guards acquisition, are included in the cost of revenue. Product margin before these costs is 55%, consistent with the margins New Guards delivered pre-acquisition.

Q4 revenues on the brand platform are primarily associated with shipments on orders for the upcoming spring/summer 2020 shopping season, with the result driven by strong demand across the portfolio, including Off-White, Palm Angels, and Heron Preston. On top of the wholesale revenue, New Guards is delivering on its strategic rationale, with a clear and positive impact on the digital platform. We can see that stronger collections of first-party original brands are driving customer engagement and traffic across the digital platform. This has led to New Guards' brands delivering $36 million of the digital platform GMV. Moreover, these brands are delivering a strong halo effect on the other 3,400 brands available on the Marketplace, with the number of baskets with both a New Guards item and an item from anther brand growing 81% year on year in Q4. Consolidating our two platforms and our stores grew gross profit, less demand generation, which we view as our variable contribution, with $125 million, up a health 108% from $60 million in Q4 last year. Turning now to fixed costs, where we are delivering underlying operating leverage, our tech spends and our G&A costs were 6.7% and 35.6% of adjusted revenue respectively, with G&A incorporating non-like-for-like costs associated with the brand platform, plus a larger than expected bonus accrual, compared to a release of accruals in Q4 2018. This is a result of the stronger performance we delivered across the quarter. We expect further operating leverage in the years ahead, with Marketplace economies of scale, growth of clients on top of the tech platform, plus expanding brand platform sales delivering revenue growth ahead of the growth of our fixed costs.

In terms of progress toward profitability, our Q4 growth, improving economics, and significant operating leverage has delivered an adjusted EBITDA loss of $17.9 million, almost half the $35.6 million loss from Q3. This resulted in an EBITDA margin of minus 5.3%. This demonstrates the power of the financial strategy at work, and provides further confidence that we will deliver on our goal of achieving profitability at the adjusted EBITDA level in 2021. Now turning to the Q4 $50 million charge for depreciation and amortization, this step-up from prior periods is predominantly driven by a $30 million amortization of intangible assets that we have acquired over the last 12 months, including brands from the acquisition of New Guards, compared to no such charge last year, as well as $5 million of depreciation of right-of-use assets, which were recorded within G&A before the adoption of IFRS 16 on January 1, 2019. This is the equivalent accounting standard as FASB ASC 842. Our Q4 share base payments charge of $42 million was primarily associated with our Farfetch for all employee share incentive program. We believe employee share ownership supports total focus on creating shareholder value over the medium to longer term. During the quarter, we incurred $6 million of transaction-related legal and advisory expenses included in other items, and a loss of $11 million due to the revaluation of equity-linked liabilities held at fair value, predominantly in relation to the non-cash consideration payable to Chaloub for our successful Middle East joint venture. There were no such items in the fourth quarter of 2018. The resulting loss after tax for the quarter was $110 million, or $0.34 per share. Adjusted EPS was an $0.08 loss per share, which is ahead of consensus.

In terms of liquidity, we increased our cash and cash equivalent balance by $4 million during Q4, closing the year with $322 million on hand. This position was generated from the favorable working capital dynamics associated with Q4 being our largest quarter, as well as the cash contribution from New Guards. Subsequent to year-end, we added to our cash balance, issuing $250 million of convertible senior notes to Tencent and Dragoneer. In conjunction with this transaction, we have cancelled the undrawn EUR300 million loan commitment that had been in place since August 2019. Turning now to our expectations for 2020, we start the year as the market leader of the in-season global online luxury market. Our business model has positioned us as the partner of choice for luxury suppliers, and we have developed a strong consumer offering. This position means we expect to continue to gain market share, with group GMV for 2020 between $3 billion to $3.1 billion, representing 40% to 45% annual growth, including the acquired brand platform, which we expect will deliver approximately $470 million to $510 million of that GMV at a gross margin of 45% to 47%. We expect the digital platform to grow in line with our medium-term expectations, at around 30% year on year, to deliver GMV of $2.5 billion to $2.56 billion. The year-on-year growth will be back-weighted, as we continue to balance the work started in Q3 last year, to step back from promotions and focus more on our full-price business, as we aim to maintain digital platform order contribution margin above 30%. With expectations for further operational leverage, we estimate an adjusted EBITDA loss between $70 million to $80 million, representing a $40 million to $50 million improvement over 2019, which would deliver a substantial step forward in adjusted EBITDA margin versus previous years.

Noting what Alice mentioned at the start of this call, I'd now like to look specifically at Q1. We expect year-over-year group GMV growth of 44% to 51%. With respect to our digital platform, you'll note that in Q1 2019, we grew 50% on a constant-currency basis, on top of 67% growth in Q1 2018. With the currency impact now largely annualized, in real terms, we are comping against very strong growth. As we balance our full-price position, our spend on customer acquisition and engagement, plus manage volumes across our channels to ensure sustainable long-term market share gains, we are expecting Q1 digital platform GMV growth of 20% to 22%. Across the rest of the year, we expect higher growth to result in around 30% year-on-year growth for the full year 2020. The brand platform is expected to deliver GMV of $100 million to $120 million across Q1, as we see continued strength from the spring/summer 2020 selling program. Finally, we estimate a Q1 2020 adjusted EBITDA loss of $30 million to $35 million, and to finish the quarter with a healthy cash position of $415 million to $430 million.

Jose?

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

Thank you, Elliot. Twenty-nineteen was a landmark year for Farfetch and could not have ended better, with a record-breaking Q4 where we beat expectations, both in terms of top line growth, order contribution margin, and adjusted EBITDA. We continued to gain market share across our regions, further entrenched ourselves as the partner of choice for luxury brands, and surpassed other in-season global online luxury players to become the clear leader in our space. We are also already seeing meaningful strategic branding and financial contributions from New Guards. As we look toward 2020 and beyond, we are excited by the prospect of continuing to build on our leadership position. I believe 2020 is going to be another year of strong market share capture, stable unit economics, and leverage of our investments to continue on our path to 2021 profitability at an adjusted EBITDA level.

I am very confident of all the amazing work being done by our teams all around the world and would like to take the opportunity to congratulate all Farfetchers for a record-breaking 2019, as we start 2020 from a position of strength. Thank you.

Questions and Answers:

Operator

[Operator Instructions] Please stand by while we compile the Q&A roster. Your first question comes from the line of Louise Singlehurst with Goldman Sachs. Your line is open.

Louise Singlehurst -- Goldman Sachs -- Analyst

There's obviously going to be lots of questions, probably, around a bit of coronavirus as well, given the sector news flow. But just, the great progress in the strength of the AOV the margin improvement seen in the fourth quarter. Just on the back of what we're seeing and the risks around demand for the industry, particularly across the boutique partners that you have, is there a risk that there will be excess stock coming through to the platform? You've done such a good job to reduce the level of promotional activity, but is there a risk that you have to manage a little bit more with the current situation? And then, followed on from that, my second question would be, given the current environment, do you think there could be an acceleration in brands really trying to accelerate the move from traditional wholesale to going direct on the e-Concession platform? Thank you.

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

Hi, Louise, this is Jose. Thank you for your question. The Farfetch business model, you know, 90% of the inventory we have accessible to sell on our channels is third-party inventory, meaning we take no inventory risks. And as such, in the event that there is a buildup of inventory, we obviously hope to be a positive force for this industry in this difficult moment and be one of the channels that is actually growing very fast, including in the territories that have been affected, and as such, we hope to be a positive source of news and trading for our boutique partners and for our brand partners. But we obviously are not taking risk on the vast majority of our inventory position, and as such, I don't see a risk to trading or margins. And on your second question, it was already happening. So the move to e-Concessions is very, very clear it has accelerated in 2019. It was a fantastic year for our direct brand relationships. The number of e-Concessions grew 40%, 20 trendier at over 500. It accelerated both New Guards. It was an acquisition that was received with excitement by many CEOs, many heads of the groups who sent me congratulations straight after that acquisition. They're excited about all the things we're doing about the brand, community, Farfetch BEAT. And we actually added 49 e-Concessions since August. So, yes, it's very exciting on that front. Brand relationships have never been healthier, and we hope to continue to be a source of very fast growth across all the key geographies, including those that unfortunately have been affected by this crisis.

Louise Singlehurst -- Goldman Sachs -- Analyst

That's very clear. Thank you.

Operator

Your next question comes from the line of Doug Anmuth with JPMorgan. Your line is open.

Doug Anmuth -- JPMorgan -- Analyst

I wanted to ask two. First, just on discounting and promotions, it's pretty clear that your levels are down significantly. But can you just talk about the broader industry in terms of what you're seeing and kind of how far through the cycle you think we are in working through this, you know, perhaps over the next few quarters? And then, second, maybe I'll take the other side of the COVID risk around inventory. But do you have any concerns about the supply chain out of Europe, and Italy in particular? And is there anything at all factored into your 2020 guidance around that? Thanks.

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

So in August, we spoke to you and to the whole community about the promotional environment. And just to remind everyone, essentially, we had three messages. The first message was that online wholesale was becoming increasingly promotional and that brands were divesting to move toward e-Concessions. The second message was that we decided to moderate our growth to a still fast market share capture, around 30% to 35%, and that would lead to a stabilization of our order contribution. And the third message was that we were going to take a leadership position in this industry, and that we were going to find a formula to navigate this promotional environment independently of how long this transition phase with the brands would take. And I'm very, very pleased that, six months after, we delivered on each of these three points. So in terms of the move away from online wholesale to e-concessions, it's quite clear. I can give you some recent examples of earnings calls where this was addressed. In the last Kering earnings call, thinking about Gucci, management was very clear that Gucci was going to prioritize their direct online channels and e-concessions. As far as I'm aware, Farfetch is the main e-concession that Gucci operates. We have another example. Tod's clearly said that they were going to phase out wholesale, deprioritize wholesale and he's asking direct online channels. I am pleased to say, Tod's is one of the 49 brands that joined the Farfetch Marketplace with an e-concession in the last few months. Prada, another example, was very clear in their earnings call. Since then, our market sources indicate they have stopped working with our main competitor altogether, and with all the other online wholesale competitors, they restricted them to sales in their territories only. So, there are numerous examples.

So the brands are definitely taking action, and obviously, the strong growth of our e-Concession channel proves that the second half of our prediction, that they would double down on Farfetch, is clearly happening. On the second promise, we did deliver what we said we were going to deliver. We actually beat our growth of 30% to 35% in both Q3 and Q4. And we actually over-delivered in terms of margin stabilization, and we have sequentially extended our margins, both in Q3 and Q4. And the third answer that we had in August, we also delivered on that. We are now the clear leaders in this space, and we have found a formula, this formula of strong market share capture, balanced with stable unit economics, is delivering a very steady path to profitability. On your second question regarding the novel coronavirus, we had a very, very distributive and diverse supply base, so we source supply from 50 different countries. We source supplies from literally thousands of inventory points in these 50 different countries. We use a myriad of routes and logistics patterns in combination, to service over two million customers in 190 countries, and we think we're more resilient and more prepared than a retailer or an e-tailer who would typically either rely on physical traffic, if you're a retailer, or on one or two or three, very few logistics hubs to conduct their business. So, I think we're particularly well positioned. Notwithstanding that, of course the situation is changing every day. So far, we have seen no material impact in the logistics across our entire business, both supply and demand. Of course, in China we know the Hubei province has logistics restrictions, but obviously, it was very limited in terms of the impact of trading. And as such, we're very confident in that, and to that sense, we are confidently giving guidance, both for Q1 and for the full year of 2020. And we hope also to be a source of relief and positive news for our cherished partners who, in some cases, need help in this situation.

Operator

Your next question comes from Oliver Chen from Cowen and Company. Your line is open.

Oliver Chen -- Cowen and Company -- Analyst

Regarding the environment and promotional environment at large, what are you seeing in terms of how that will evolve and your thoughts on the forecast and how that may interplay with your very disciplined strategy to focus on engaged customers? I would also love your thoughts on why your AI technology was leading, if it had to do with the strength of your training set or deep learning backwardation models. And then, Farfetch BEATs looks like quite an innovative, powerful new generation kind of concept. How should we think about how that may manifest in traffic as we look at our models and what you hope to do with that business as a marketing or loyalty driver? Would love thoughts. Thank you.

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

Thank you, Oliver, and welcome to our call. Great to hear your voice. So on the promotion question, I think I addressed most of the salient points with Doug. I would add that the current level of spending in promotions is the lowest in six quarters for our business, and I firmly believe we found a formula balancing growth, which we're guiding 30% growth for the digital platform, 50% growth overall for the group in 2020. That's very strong growth. And we run our business based on LTV CAC models. Promotions are a part of the mix. Some promotions are adequate and are brand friendly, boutique friendly, customer friendly. I'm thinking, you know, free shipping for Access members, special gifts when you go up one level in Access, etc., etc. So, we will continue to balance the several demand generation channels. For us, it is crucial to make sure we're building very, very valuable cohorts. I'm very pleased that, while we are the clear leader in the industry and growing at 30%, where the latest available numbers from our closest competitor is low single digits, we still have a CAC to LTV payback of less than six months, which as you know, in e-commerce and two-side marketplaces, is best in class. And therefore, it's all about, you know, all the channels, affiliates, display, changes in marketing, some level of targeted promotions, and how do we balance that. But I believe we have found the formula, and independently of how long this transition period of brands retreating from online wholesale and doubling down on direct channels and e-concessions, independently of how long that transition will take, we have found a great formula and a great balance.

It is also about organic traffic, and you touched on BEAT. We're very excited about BEAT. We're very excited that our top future brands, I've called the CEOs beforehand to let them know about this great opportunity. They were incredibly engaged and confirmed they wanted to be part of it. Of course, this also leverages our portfolio with NGG and Stadium, and we think we can create tremendous, tremendous organic traffic through these jobs. It is very difficult for the luxury industry to move from a seasonal cycle to a job cycle. It's operationally difficult, difficult to do it digitally, difficult to do it globally, including China, Middle East, Russia, Brazil. And that's what we're delivering to the brands is an incredible channel to be more close to real-time and push categories that they're excited about, products that they're excited about, leveraging the power of our great community.

Jason Helfstein -- Oppenheimer -- Analyst

Your next question comes from the line of Jason Helfstein with Oppenheimer. Your line is open. Could you give us some help, specifically I guess as we think about the cadence around the digital order contribution margin over the next few quarters? And then, just secondly on the virus, I mean, to the extent of do you have data that shows that customers who are in affected areas, they may be engaging with your site more, even though they may not be converting as much? And then you wonder, when you come out of this, have you actually seen changed behavior that you benefit in that shopping, you know, a year from now or something like that? Thanks.

Elliot Jordan -- Chief Financial Officer

Hey, Jason, it's Elliot here. Just in terms of the order contribution, obviously extremely pleased to see the sequential improvement coming out of Q2 into Q3, and now into Q4. You know, we're obviously still annualizing the effects of the promotional environment last year. As Jose was saying, we obviously changed our strategy to focus on full price and align ourselves with the brand partners on the e-concession, really from July. So, we've still got a couple of quarters of that to annualize through, and that's important to note for the first half and then, you know, how we see the second half evolving in terms of delivering the overall 30% growth for the digital platform in terms of GMV. And that should be in mind, also, when we're thinking about our order contribution. Obviously, we'll see some improvement from that over the year, but I think you should keep in your models a focus on it being in the 30s, in the low 30s for the time being, just as we navigate all of the changes that we're putting through in terms of readjusting to the full-price model and how that works. You'll note from my commentary earlier on that the order contribution's still being held down by the margins on the first-party business. It's a key area of focus for us to continue to drive the gross margins on that first-party business, and also slow the growth of that business down and allow the third-party business to sort of kick on again, to help bring the order contribution on average up. And also, we're focused on benefiting from all the work we're doing at the moment around F downloads, engaging with customers, and spending on them in terms of digital channels and start to see some of the benefits of the organic traffic coming through from either those F downloads or the BEATs program, as Jose was just talking about. So, improving order contributions as we move forward, but I would keep it in the low 30s, just for the time being.

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

And, Oliver, apologies; I didn't answer your entire question. Yes, just went to that. It is an in-house proprietary algorithm. We have an unrivaled dataset, so that's a great start. We see sales from 3,400 brands. We see not just online transactions, but we also see the offline transactions, as we are synchronized in real time with the stock and the transactions of the boutiques and the brands. And of course we're larger in not just sales, but obviously in traffic and interactions than anyone else in the industry. That, of course combined with our luxury AI and machine learning algorithms, which we've been perfecting and testing against third-party algorithms that are best in class, we were not winning one year ago. We were very close. And we fine tuned and continued to improve on those machine learning models, and recently, we consistently started beating the third-party tools the third-party algorithms, rather and we've now switched to Inspire, which is also much more qualitative. So the quality of the recommendations, the luxury level and the fashion acumen, so to say, of this algorithm is also superior to the more generic solutions out there. And so, I think this is great, because this is really creating a great experience for our customers. But also, it is a proprietary competitive advantage that we will continue to build on, and we're happy that our investments in technology are working across the board, and this is a great example of that.

Operator

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

Ike Boruchow -- Wells Fargo -- Analyst

Let me add my congrats on the great end to the year. I guess, Elliot, two questions. Great platform GMV growth in the fourth quarter, and 30% guide for the year looks good. I guess I'm just, I'm kind of confused on the Q1, the 20% to 22%. Could you help with the building blocks here? I mean, I know Stadium Goods is rolling off. I'm not sure if something is going on with the one-piece sales, you know, the Harrods ramp-up. I mean, I'm just trying to understand what this lull is for Q1 that then reaccelerates going forward. And then my second question is just, you seem to be pretty confident about talking about breaking even or hitting profitability in the next fiscal year. Is there some can you help us understand what kind of contribution margin is baked into that assumption for you guys to get there? I'm just kind of curious what your model kind of implies for you to hit those targets. Thanks so much.

Elliot Jordan -- Chief Financial Officer

Let's go second question first. In terms of getting to break-even in 2021, absolutely very confident on that position. I think the results of the last quarter really highlight the power of the financial strategy when it's working well, driving solid top line growth, bringing the order contribution up. And then, importantly, on an underlying basis, leveraging the fixed-cost base, and that's what's closing the gap in terms of our negative position back up toward profitability. And, you know, as I look to the growth for the full year, obviously we're annualizing the acquisition of New Guards Group contributing significantly across the 2020 period, but with the Marketplace really performing well over the full year. We're seeing good market share gains, and that's obviously driving cash contribution over the fixed cost base and moving toward profitability. So, very simple model, really, to be able to get to profitability. You don't need to put in your models much more than low 30s in terms of an order contribution on the digital platform to hit break-even. We're in the place at the moment where, if you have that in your numbers, it's probably a good place to be. I'm assuming we'll be above 30%, making good, slow progress to improve that to our 60% target over the longer term. But for a 2020 break-even, we don't need to necessarily push that forward too far.

In terms of your first question, you know, I think it's important to focus on the fact that we are now the largest player in this space, with $2 billion of GMV for last year and forecasting $3 billion for the year ahead. It's definitely put us as the leader in this position. And as we see it back at the IPO, we've always expected the digital platform, in totality, to grow at 30% over the longer term, as we continue to grow ahead of the market, which we forecast is growing around 20%. And that's we're guiding to for the full year, sticking to that long-term growth trajectory. And, as Jose said before, you know, our nearest competitor is, from what we can tell, growing in low single digits, so we're definitely storming ahead of others in this space because of the superior business model that we have. In managing to that 30% target, you know, we have to think through about the comps that we had. Q1 last year, we were growing at 50% on a constant currency basis, and that's on the back of 68% from the year before. And so, once we navigate that comp, plus also work through two more quarters of pulling back on promotions, which as I said, before we started in July in balancing the full-price position, we see Q1 growing at 20% to 22%. And, obviously, that picks up toward Q2, 3, and 4, to balance out to 30% overall. And as you see, it absolutely you know, the digital platform as a whole is growing to that position. And of course, Harrods now live will build into that, as we ramp them up from now on and for the rest of the year.

Operator

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

Stephen Ju -- Credit Suisse -- Analyst

So, Jose, you touched on the slower integration with JD, so we're wondering if you can elaborate a bit on where you are in that process. Are you still working on the presentation, or is there another issue? And I believe you're a partner with JDlogistics in China, also, so you're presumably not seeing as much in delivery headwinds. And, Elliot, the DTC mix for New Guards, I believe at the time of the acquisition, was mid-single digits or so, and you talked about ambitions to significantly expand that over time. So, you know, how much of this is baked into the 2020 digital platform growth guidance parameters? Thanks.

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

Businesses in China is firing from all cylinders. We're extremely pleased with the execution there. It's our market number 2. It's growing faster than market number 1, so it's closing the gap to the West. It's a very, very unique positioning we have in China. There are not many Western companies, and in luxury none as far as we're aware, that have the infrastructure we've created there. We have 400 people on the ground in Beijing, Shanghai, Hong Kong, domestic logistics, cross-border logistics, data center on the other side of the firewall, a complete proprietary app, created by Chinese engineers and project managers, native how they pay, WeChat pay, login by phone, etc., etc. So, we're very, very pleased that our own channels are firing from all cylinders, which means we're in full control of our destiny. The JD channel is growing, is ramping up. It is slower than what we expected, and we continue to do, you know, tons of things to optimize it, from data science, who sees the button. It's exposed to three million out of the 300 million users of the JD app. Refining that data science algorithm is obviously crucial. Conversion rate in terms of the landing page, product categories, AOVs, merchandising, etc., etc., all of those levers have been pulled. It is a small part of our business in China and growing slower than what we originally expected. But I think the main and the most powerful message, to me, is that we are in control of our destiny in China, and our own channels are exploding. So, very, very happy overall with that market.

Elliot Jordan -- Chief Financial Officer

Yes, and just on the DTC for New Guards, I mean, this is a super exciting area of the acquisition. I'm pleased to say that actually, we've now launched two of branded websites for New Guards on our Farfetch platform solution, so not only going live with Harrods, but the team has delivered, in pretty quick succession, websites for two of the brands. I encourage you to go visit the Off-White website, in particular. You may have been one of the millions of visitors that sort of checked out the drops a couple of weekends ago. And that, obviously, is all now part of the DTC, the direct-to-consumer channel, which is at about 20% of the contribution for New Guards to our digital channels. So the $36 million that we said over the quarter that came through from New Guards on the marketplaces, about 20% of that number is direct to consumer. That's a good balance. I think, you know, part of the reason why our multi-brand boutiques are excited about the future with Farfetch is that they will have access to brands from the New Guards portfolio. We obviously want to encourage them to sell those brands on the marketplace as well. And you know, we see that as a great way to support their businesses and continue to enrich the partnership that we have with our partners. So, you know, 20% to 25% direct to consumer is a good number to have in your mind. Obviously, if the direct brand websites pick up and we see substantial demand shift to websites like off-white.com, that number could change. But in terms of my forecasting, I'm keeping it in that sort of 25% category.

Operator

Your next question comes from the line of Ed Yruma with KeyBanc Capital Markets. Your line is open.

Ed Yruma -- KeyBanc Capital Markets -- Analyst

I guess first, as a segue from the last question, it seems like you've got some good momentum in Off-White. I guess, how do you feel about the existing distribution footprint? I know you've been trying to make more of it on the site. But kind of, do you feel like you're clean at this stage? And then second, as we think about the model for this year, obviously you guys has some nice leverage on both G&A and tech spend. Would you point to either of those as being kind of outsized as we head to as we get to the guidance you provided? Thank you.

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

I'll answer the first question. We're implementing a selective distribution strategy for the brand platform. This is, you know, best in class, you know, the best brands in the luxury industry, from the LVMHs, Kerings, Dishman, etc., have these, you know, selective distribution arrangements in place. This means that NGG is asking the wholesale clients to limit their online transactions to their territories, as legally, obviously, they are allowed to do, and it's part of very well-regulated selective distribution agreements. As a result, some relationships were exited with some of the online players. The order book is, nevertheless, extremely strong, as you can see from the numbers. A lot more disciplined in terms of geo pricing, control of markdowns, and control of promotions is being applied, actually. And it is a time of lines, and actually, in line with you know, I mentioned Prada, I mentioned Gucci, Tod's, but I could go on and on and on. The best brands are protecting their price integrity, and NGG is New Guards is not any different. So, that is well advanced and in place, and it's not having a material impact on the brand platform business, as you can see from the numbers, but will have a very positive impact on the digital performance of the DTC channel, which is going to benefit from more price discipline and less promotions for New Guards brands. So, really happy on that front as well.

Elliot Jordan -- Chief Financial Officer

Just in terms of leverage moving forward, I'm expecting to see good leverage actually coming across most of the fixed costs, as we move through 2020, into 2021. The technology is one area where the teams, as we've been talking about, have been doing a phenomenal amount of achievements. We've obviously invested in that team over recent years and delivered with the Harrods rollout, and an amazing step forward in terms of the capacity and the capabilities from the platform. Obviously, the growth of Harrods will leverage that work, so we should see some leverage across the digital platform, and therefore, revenue over that technology spend, so more leverage there. And then, in terms of the other fixed cost areas, the teams in production and our customer service and operations teams, they are also just focusing on efficiency as we move forward, using new tools that the technology team have been developing for them to serve customers better, to reduce the contact-to-order ratio, to speed up resolution of customer queries. And that's an area where we're seeing leverage moving forward. But not just focused on that team, most of the corporate functions are seeing increased revenue per employee, driving leverage, and we're really with a key focus on growth of 30% per annum this year and drive toward profitability. The teams are very focused on that as a goal. So, leverage across most of the areas for the year ahead is what I'm seeing.

Operator

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

Lloyd Walmsley -- Deutsche Bank -- Analyst

Two, if I can. First, just on New Guards, can you guys talk about the strength of the product pipeline in terms of both, you know, product from existing brands and maybe even new brands, anything you'd call out for this year on either front? And then secondly, in terms of the Harrods launch, can you kind of give us a view of some of the things that have gone better than expected, or any challenges you'd flag? And then, has that driven any meaningful pick-up in other conversations with other department stores, following the launch? Anything you could share there would be great.

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

Hi Lloyd, on your question regarding New Guards, we are delighted to receive a stamp of approval from the creative community as well. As you may have noticed, two new brands shined the portfolio, Opening Ceremony and Ambush, in January. The Creative Directors behind these brands are incredibly talented and incredibly respected in the industry. Carol and Humberto turned around Kenzo and of LVMH. Verbal and Yoon from Ambush are amazing creative minds. They, as you know, collaborate with Dior in terms of the high-jewelry collection. So, it's great to see that it's not just a business world and consumers, but also, actually, the creative community clearly seeing that we are going to build the brands of the future and wanting to participate in this model, which is tremendously powerful. So, we will continue to grow the existing portfolio of brands. Off-White is going very well, but for example, Palm Angels is growing super-fast. You can see even in terms of Google trends and search trends growing faster, actually, than any other brand in the NGG portfolio. Heron Preston, new brands such as Kirin, Peggy Gou, the Korean influencer, NDJ, who we started a brand with from scratch. So it will be a mix of small but very, very high potential existing brands, and also, completely new concepts from scratch. This is we didn't acquire a conglomerate or a group of brands. We acquired a studio. They are a true brand platform that will create hit after hit, and we can see that in the data. We can see that also in terms of the excitement from the whole creative community, and obviously, translating that into clicks and shopping baskets as well.

On Harrods, we are extremely pleased. I can share with you that we've launched on today the exact date that we signed with Harrods one year ago. And if you think that Harrods is a multi-billion operation with tens of thousands of products, categories that we didn't have before on our API, such as beauty, food and beverages, homeware, incredible complexity in terms of their sophistication, in terms of their loyalty programs, etc., etc., this is an incredible achievement. So, this proves that Farfetch is not a retailer and is not just a marketplace. We are a true technology platform at the service of an entire $300 billion industry. And, yes, we are talking to many other department stores. As you've seen, we have 21 companies using our proprietary platform to develop their digital strategies, including 80 in China on our WeChat suite of products via CuriosityChina, including Chanel, an exclusive deal to develop the Store of the Future, which has been very successful and is being rolled out; 21 customers on FPS, including multi-billion-dollar Harrods, and we are very excited about that part of the business. It's going to leverage the strong investments we've done in technology over the first 10 years of this company and provide a very accretive, very high margin and very profitable revenue stream for our business for many years to come.

Operator

[Operator Closing Remarks]

Duration: 75 minutes

Call participants:

Alice Ryder -- Vice President Investor Relations

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

Elliot Jordan -- Chief Financial Officer

Louise Singlehurst -- Goldman Sachs -- Analyst

Doug Anmuth -- JPMorgan -- Analyst

Oliver Chen -- Cowen and Company -- Analyst

Jason Helfstein -- Oppenheimer -- Analyst

Ike Boruchow -- Wells Fargo -- Analyst

Stephen Ju -- Credit Suisse -- Analyst

Ed Yruma -- KeyBanc Capital Markets -- Analyst

Lloyd Walmsley -- Deutsche Bank -- Analyst

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