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Farfetch Limited (FTCH -25.00%)
Q3 2020 Earnings Call
Nov 12, 2020, 4:30 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good afternoon. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to Farfetch Third Quarter 2020 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

I'd now like to turn the call over to you, Alice Ryder, VP of Investor Relations. Ms. Ryder, you may begin your conference.

Alice Ryder -- Vice President, Investor Relations

Hello, and welcome to Farfetchs' third quarter 2020 conference call. Joining me today to discuss our results are Jose Neves, our Founder, Chairman and Chief Executive Officer; and Elliot Jordan, our Chief Financial Officer.

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 speaks only to our expectations as of today.

We undertake no obligation to publicly update or revise them. For a discussion of some of the important risk factors that could cause actual results to differ, please see the Risk Factors section of our Form 20-F filed with the SEC on March 11th, 2020 and in Exhibit 99.2 to our Form 6-K filed with the SEC on April 27th, 2020.

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'd like to turn the call over to Jose.

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

Thank you, Alice, and thank you all for joining us today. I'm very pleased to be speaking to you about Farfetch's Q3 2020 results. Our business accelerated in Q3 to deliver record group GMV of $798 million. This record performance was underpinned by the Digital Platform, which accelerated to generate GMV growth of 60% year-over-year, our highest digital platform GMV growth in 10 quarters.

We believe we're witnessing a paradigm shift in the way people buy luxury. From day one, Farfetch set out the differentiated vision to enable the luxury industry by building a full suite of capabilities to connect the creators, curators and consumers, who are the lifeblood of the luxury industry. This has not only positioned Farfetch to capture the accelerating online demand resulting from increased consumer adoption in light of the continuing global pandemic, but we are actually helping drive this paradigm shift for consumers, as well as brands.

Our Q3 performance was achieved during a quarter when most of the world had reopened physical retail following widespread lockdowns during Q1 and Q2, and when most consumers had the option of returning to their local luxury boutiques and department stores. This online adoption is consistent with what our recently acquired customer [Indecipherable].

In a recent survey of our newer customers, 45% said they will continue to do more of their shopping online, now that they're used to it. And 23% said they would do most of their shopping online from now on. This clearly indicates that the luxury industry will not go back to the same normal as many with pre-COVID-19, and the firms may believe that we are witnessing a major acceleration of the sustained online adoption I have anticipated when I founded Farfetch 13 years ago.

Q3 GMV for the Farfetch marketplace, which represents the significant majority of our GMV from consumers, grew more than twice as fast as in Q2 2020, largely driven by active consumer growth, as we leaned into a lower customer acquisition cost or CAC environment to drive efficient growth of our luxury consumer base, particularly via mobile app downloads. On top of this, we've continued to focus on retention by leveraging our vast state of resources to offer a more relevant experience, and it is delivering results.

Conversion rate for our data-driven personalized communications are 1.5 times higher than non-personalized messages on average. Our implementation of machine learning technology, such as our proprietary Inspire algorithm are also driving engagement with these consumer communications, which is on average five times higher.

We have contributed to a month-over-month improvement in retention rates from March through the end of Q3. To date, we have driven online adoption through our performance pricing less consumer acquisition efforts, and in Q3 we also set out to complementing the assets by building awareness of the passage brand to ultimately increase organic engagement.

You've heard me say that Farfetch is a bigger company than it is a brand. While we've managed to build the leading global luxury fashion platform, result meaningful branding investments, luxury is an industry of brands. And we see significant opportunity ahead in building awareness of Farfetch. With the industry in a critical phase of online transition, now is the right time.

In September, we launched a new Auto Fennell marketing campaign, marking a key milestone in our chapter two growth strategy. The campaign cavelined open doors to a world of fashion. We focused on building brand loves and an emotional connection to Farfetch by communicating what makes Farfetch unique, who we are and what we do. The campaign was rolled out in Shanghai, New York, London and the Middle East across out of home, clean, social and online channels, as well as our first foray into addressable TV.

In conjunction with this, we also launched a new brand identity for Farfetch, and refreshed look and feel of all external and internal placing touch points, including the marketplace. Not only are we seeing positive reactions from consumers who are saying that the new clean, modern and luxurious look and feel allows them to focus more on their shopping journey, but luxury brands have also remarked on the elevating the image of our marketplace, following our rebranding.

We're very pleased with the initial feedback and will amplify our campaign over the coming months to continue driving our unique brand positioning. In addition to driving online adoption by consumers, Farfetch is also powering the digital transformation for luxury brands and retailers. The accelerating demand we have seen across the Farfetch marketplace is driving heightened interest from brands and retailers, who have taken note of luxury consumers increased adoption of online channels. And Farfetch consumers are particularly attractive to brands and retailers. They represent one of the largest global audiences of luxury shoppers. And about two-thirds of our consumers and millennials are Generation Z, a higher proportion than the overall luxury industry, which offers our brand and retail partners increased exposure to the customer segments that had to fuel the future growth of the luxury industry.

Additionally, our focus on delivering full price sales has made Farfetch a particularly attractive channel for new and existing partners, many of whom see this as a challenging environment as an opportunity to take the actions needed to tilt their distribution strategy away from wholesale toward direct-to-consumer, including by leveraging Farfetch's multi-brand e-concession model. Our record Q3 Digital Platform GMV reflects an increased mix of products sold at full price and products sold without any promo.

In fact, we had a 70% year-on-year reduction in promotional days during the period. And as we head into the Q4 promotional period, during which time we expect to see an aggressive push by our competitors in response to further physical shopping restrictions and concerns in light of the current resurgence of COVID-19 infections, our plan is to continue executing on the strategy with respect to less promotions.

Distance has strengthened our times with our existing e-concession brand and attracted some of the most desirable brands to the Farfetch marketplace. We are thrilled to welcome Moncler, a Top 10 brand on the marketplace, and have also recently signed Dolce & Gabbana, Ralph Lauren and our first brand from the Swatch Group, RADO, as new e-concessions. In addition to integrating additional supply clients, from existing brand partners, who leaned into the marketplace proposition. At a result, we saw our highest ever depth of inventory in Q3 and our overall supply partnerships have expanded to more than 1,300 third-party sellers now participating on the Farfetch marketplace, improving more than 550 brand e-concessions and over 750 retailers.

The strong results for both consumers and brands demonstrate the unique positioning of our global platform, which I believe will emerge from the current environment structurally stronger. And last week we announced plans to work together with Alibaba and Richemont to build on Farfetch's existing platform capabilities to realize the luxury new retail vision, which is an extension of Farfetch's long-held strategy to be the global platform for the luxury industry. I'm excited by the prospects of leveraging the leading-edge expertise Alibaba processes in the areas of omni-channel and installed technologies to accelerate the digitization of luxury, by offering a suite of products, powered by Farfetch, which will and combat both online and in-store technologies, in both multi-brand and mono-brand environments.

In doing so, Luxury New Retail will enable leading luxury brands with one single path on integration to achieve a global omnichannel presence via mono-brand destinations, luxury-retail stores. We've had two leading online luxury fashion destinations; Farfetch's marketplace and Tmall Luxury Pavilion. I'm also thrilled to be partnering with Alibaba to fund the Luxury New Retail steering groups and that we will be joined by Richemont Chairman, Johann Rupert and Artemis Chairman, Francois Pinault.

Additionally, the formation of our China JV and our launch of the Farfetch Star on Tmall Luxury Pavilion, which we are expecting to at least 2021 will boost our exposure to include the 757 million consumers across the Alibaba Group. These initiatives will be underpinned by $1.15 billion of total investments by our strategic partners into Farfetch, providing additional capital, which further strengthens Farfetch position to go after the opportunity of powering the future of luxury retail.

And with that, I'd now like to turn the call over to Elliot for a financial review.

Elliot Jordan -- Chief Financial Officer

Thank you, Jose, and hello, everyone. Farfetch continues to operate from a position of strength, both operationally as Jose has been outlining and from a financial perspective.

Across the group, in Q3, GMV grew 62% year-on-year to $798 million. Adjusted revenue increased 69% year-on-year to $387 million. Adjusted EBITDA, our measure of underlying operating profitability, improved $26 million compared to Q3 2019 to minus $10 million taking our adjusted EBITDA margin to minus 2.7%. And finally, our cash position closed the quarter at $757 million with a further working capital benefit offset by a $42 million tax payment in the current quarter. These results represent a big step forward for Farfetch with strong growth across the business, improving gross margins, further operating cost leverage and substantial progress toward achieving our goal of full-year adjusted EBITDA profitability in 2021.

I'd like to share some specific insights about the Q3 performance from our three business segments. First, our digital platform. This platform delivered GMV of $674 million, representing 60% year-on-year growth on reported result and 61% growth on a constant-currency basis. Our marketplace growth accelerated as we continued to see strong demand from new customers and strong retention of existing customers. FPS growth also accelerated with strong results across all our FPS clients.

The addition of harrods.com and offwhite.com earlier in the year, as well as three new branded websites for the New Guards Group in the quarter. These new first-party original site as well as high-demand on the marketplace have driven first-party GMV growth of 116% year-on-year to 17% of platform GMV. GMV growth from third-party sellers also accelerated to 60% [Phonetic] year-over-year at 83% of platform GMV, and we achieved a sequentially higher take rate of 30.4%. As a result, Digital Platform Services revenue grew ahead of GMV at 68% year-on-year to $263 million.

Margins on the Digital Platform improved significantly in Q3, with order contribution nearly doubling year-on-year to $97 million and order contribution margin increasing to 37% compared to 31% a year ago and 35% in Q2 2020.

There were four key drivers of the 560 basis point year-on-year improvement to Digital Platform order contribution margin. First, 280 basis points improvement from reduced funding of customer promotions year-on-year. 100 basis points of improved contribution from our first-party business being a combination of increased full price mix and growth in our direct-to-consumer first-party original products, partially offset by the mix effect of the lower absolute first-party gross margins versus the third-party business. A negative 260 basis point impact from charges associated with the introduction of digital services tax that we are currently absorbing and an increase of 440 basis points through an improvement and demand generation cost year-on-year.

This significant improvement in terms of demand generation saw the cost dropped down to 6.9% of Digital Platform GMV. Its lowest level in the last two years and was primarily due to increased efficiency in our bidding engine. Improved efforts to drive reengagement from existing customers through low cost channel such as our app and a less competitive digital advertising environment.

This has resulted in remarkable result in the marketplace. New customers continued to drive a stronger mix of GMV than in previous years and we added 400,000 new customers in Q3, following the 500,000 new customers acquired in Q2. This is while achieving lower customer acquisition cost year-on-year. Overall traffic grew at approximately 50% year-on-year on a lower cost per visit and high conversion rate. App installs grew more than 70% year-on-year with app now driving over 50% of GMV with higher engagement than desktop users. Our app and mobile way [Phonetic] represented more than 75% of transactions within the quarter.

A higher full price mix year-on-year contributed to the highest quarterly average order value year-to-date of $574. Although, this is still down year-on-year by 1%, as we continued to see more units sold in lower price point categories. This work means we are achieving very strong economics from our customer cohorts.

The Q1 2020 cohort, now six-month-old, has recovered its CAC and is now fully paid back. The three-month LTV of the Q2 cohort is higher than the past seven quarters of cohorts. This LTV combined with a lower customer acquisition costs and promo spend means the cohort generated our highest three month LTV over CAC ratio in 11 quarters, and our more mature cohorts delivering greater than 60% order contribution margin.

Turning now to our Brand Platform, representing our connected wholesale business, which generated $112 million of GMV and $59 million of gross profit for a 52% gross margin. This margin reflects the phasing of deliveries across Q2 and Q3 and reverses a dip in March we saw in Q2 to achieve a year-to-date gross margin of 49% in line with our expectations. Finally, our In-Store segment saw a slight year-on-year increase in GMV to a little million dollars with the addition of new flagship stores for Off-White and Stadium Goods.

Turning to our cost base, where we have continued to drive strong operating leverage and efficiencies year-on-year. Our G&A costs and the operating cost of our technology platform totaled 45% of adjusted revenue in Q3 2020 compared to 51% in Q3 2019. We have delivered substantial leverage from our technology platform, our services platform and from our corporate functions. This has allowed us to invest into the refresh of the Farfetch brand and our employees, both in terms of their well-being, as we help them to continue to navigate the challenges coming from the pandemic and ensuring we've accrued the all-employee annual performance based bonus in line with full-year expectations.

Q3 depreciation and amortization was $54 million and our share-based payment expense was $82 million, reflecting the change in provision for employment related taxes on the back of the highest offered share price at the end of September 2020.

Turning now to our outlook for the fourth quarter. The business is extremely well placed to continue to execute on our strategic and financial goals. The strong momentum means we now expect that Farfetch will achieve its first quarter profitability as a public company and the adjusted EBITDA level in the coming quarter. Whilst we expect, we will achieve this extremely important milestone ahead of market expectations, I would like to point out that seasonality and business trend mean we do not expect to deliver a positive adjusted EBITDA every quarter of 2021, but we do remain committed to achieving our profitability target for the full year of 2021.

Whilst the paradigm shift to online continues in the quarter ahead, we remain committed to supporting the industry to manage any negative impact from excessive promotional activity and will continue to work with our partners to optimize for full price sales. This means for now, we are planning for lower promotional spend in Q4 year-on-year and we will be actively managing Q4 Digital Platform GMV growth to be between an estimated 40% to 45% over Q4 last year.

We believe this will deliver digital platform or contribution margin of 35% to 37%, a significant improvement year-over-year. This all means, we now expect Digital Platform GMV of over $2.7 billion for the full year of 2020, approximately 40% growth year-on-year, which is in line with 2019 and ahead of our initial expectations. The brand platform is anticipated to deliver Q4 GMV of $85 million to $90 million, which will result in brand platform GMV of $371 million to $376 million for the full year, taking our group GMV in 2020 to an estimated $3 billion.

These results will deliver favorable working capital movements within the quarter, increasing our underlying cash balance to an estimated $800 million by year-end. This balance will be further increased by the proceeds of the $600 million in total of new convertible notes to be issued to Alibaba and Richemont and $50 million in new shares to be issued to Artemis, which were announced last week. The $500 million investment related to the China joint venture is stated to complete in 2021. We therefore look to start 2021 with strong momentum, more than 5,000 committed Farfetchs' and a level of reserves that will ensure we can continue to support the global luxury industry in navigating the continued growth in online over the coming years.


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

Thank you, Elliot. Our Q3 results had those incredible momentum behind our business, as we leveraged our platform to drive online adoption by luxury consumers worldwide. As a result, we've attracted in Q2 and Q3 a combined 900,000 new customers. And our data shows these cohorts are even stickier than cohorts acquired before COVID-19.

Moreover, our survey of these customers revealed almost half of them plan to continue to do more of their shopping online. On top of this, we are driving accelerated adoption and record results, while significantly reducing promotional activity. These dynamic drive in better supply as more and more of the most desirable brands choose our unique e-concession model and we've seen similar strength across our Farfetch Platform Solutions enterprise business. All of which is delivering improved unit economics and profitability, and positioning us to achieve adjusted EBITDA profitability for the first time in Q4; an exciting milestone, ahead of market expectations, putting us firmly on the path toward achieving our target in full-year profitability in 2021.

I'm excited to see the Farfetch platform drive digital transformation of the luxury industry and the prospect of further leveraging our platform through the partnership with Alibaba and Richemont. As I said, I believe strongly that we have already entered a new paradigm for luxury, not only a paradigm shift in consumer behavior, but also a paradigm shift in brand adoption, in an industry that is still very independent trading [Phonetic] online.

What we are seeing is the acceleration of the secular trend from a very low online penetration in luxury of 12% in 2019 to an estimated 30% penetration in 2025. And we are not only benefiting from this secular trend, but actively leading it by enabling the industry to embrace our vision of luxury new retail. All of which, I believe, position us to drive strong sustainable growth, further market share capture and expansion of our leadership position in the years to come. Thank you.

We'll now open the call for your questions.

Questions and Answers:


[Operator Instructions] Our first question comes from Douglas Anmuth with J.P. Morgan. Your line is open.

Douglas Anmuth -- J.P. Morgan -- Analyst

Great. Thanks for taking the questions. I have two. First, Jose, just as you see the paradigm shift toward online luxury taking place, are you seeing any movement among some of the bigger luxury brand that have typically not sold online through the platform? Just curious what the potential is to bring them on over time, now that you've seen this inflection?

And then Elliot, if you could provide a little bit more color on the 4Q guide just for digital GMV, the 40% to 45% growth relative to the 60% in 3Q, is that all about kind of managing the growth with profit or there other factors we should be thinking about in 4Q? Thanks.

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

Thanks, Doug. Yeah, I think it's very clear that brands are accelerating and fast rating their digital strategies. We have 550 brands on the Farfetch platform and if you can fashion so, we already have, if I'm not mistaken, all the brands from the carrying group or most of them. We have LVMH with several brand FENTY. For example FENTY is a new addition in Q2, where we have an exclusive multi-brand platform for them. And this last quarter, we ended signing more brands, we signed Moncler, which is a Top 10 brand, we signed Ralph Lauren, we signed Dolce & Gabbana, and that is so -- so I think, we are strengthening the dies, with the brands we already have. We are adding brands from other groups.

At cost, the announcement we've done last week opens the door to conversations with Richemont. Richemont was a gap in our brand portfolio. We have so many things we can offer, the Maisons that's under Richemont Group from marketplace, FPS, Media Solutions [Indecipherable] China, Star of the Future, that -- we're excited about continuing conversations. But all we know we're strengthening in a very, very salient way the fantastic relationships we already have with most of the industry and signing new e-convergence. Absolutely, it is the paradigm shift for brand adoption and brand adoption of the Farfetch unique e-concession model in particular. Thank you.

Elliot Jordan -- Chief Financial Officer

And -- hi, just on our Q4 expectation. So we're focusing on the longer term here, as we always have been really in terms of managing growth, and 40% to 45% is market beating in our belief in terms of how we see the quarter pan out for online growth, that's also ahead of Q1 and Q2 this year, ahead of last year's numbers as well. And I think it will be an increase pretty much across the board in terms of market expectation. So I think we are continuing to focus on good solid levels of growth, particularly, setting ourselves up for next year and the year after that in terms of sustainable growth rates.

What I will point out in terms of how we do that out of stock value that we have on the platform today is the highest it has ever been at over $3 billion worth of product available through the third-party and obviously our first-party business predominantly obviously, third party. And that's coming through from a step up actually from brand partners. We are seeing again continued growth in terms of stock and trade as well. The last quarter further shifted GMV toward brand partners and we're expecting that to continue. And the key thing is as Jose and I have been saying earlier on is we want to help the industry to maximize full price. During this period, we want to pull back again year-on-year on promotional spend just as we did it in Q3. And I think that means, as I say setting ourselves up for longer-term sustained growth.

But I think because we are doing that we have to watch the promotional environment, I think we have to watch consumer sentiment, the continued impacts of the pandemic. I think winter will be a slightly different season in terms of what customers will do in terms of spend during the pandemic, whereas the summer people were still at least going out to get credit for here and things like that we were seeing purchases coming through. So, I think we have to watch what this category will do. And I think there also be, as we've seen, a bit of category mix impact as well. So, we are actively managing to these numbers for the benefit of all parties on the group. We're still seeing new customers coming through and retention, but I just don't think we want to go for a 60% growth rate win, 40% to 45% is a much better place to be in terms of supporting all players on the platform.


Our next question is from Stephen Ju with Credit Suisse. Your line is open.

Stephen Ju -- Credit Suisse -- Analyst

Hi, Jose. So, congratulations on the quarter, as well as your new partnership in China. And so, this is the second time we are thinking about the opportunity in China. So, as you think about what happened before and what you want to see now with your new commercial partner, what do you think you will do that will be very different? And also what do you think the addressable fashion sharper population in China can be? And Elliot, thanks for the LTV/CAC disclosure for the most recent cohorts.

Stepping back a bit, I think the market sounded very difficult to believe a little over a year ago when you acquired NGG that it will serve as a differentiated content-driven customer acquisition vehicle, but it seems like the high in-demand nature of the brand, there indeed helping to bring customers in. So anyway to quantify the benefits that you are seeing and the demand acquisition cost there? Thank you.

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

Thanks, Stephen. I think, we obviously consider China a very, very strategic market, and as we have stated in several earnings calls in the last few quarters, the JDStar was taking more time to ramp up than what we expected. It wasn't performing to the level that both companies expected, and we both tried to optimize it. And we started looking at data as well. So as we acquired Stadium Goods, we also acquired a Tmall Star City, which had a Tmall channel. So we could see the same skew -- exactly the same skew on Tmall and the same skew on the JDStar by Farfetch obviously, because Stadium Goods assortment is also on Farfetch, and we could see the difference and it was quite a magnitude of difference.

We also have data from our brands, and we have data from the market. So it became evident toward that while both companies are fantastic, e-commerce companies and incredible platforms, and we fully respect to JD and the team and we work incredibly hard on both sides to really maximize the channel. It wasn't really yielding, and we saw the data -- what the data was clearly showing as both in our own direct experience and also what the brands are sharing with us. So that makes us very, very confident that the Tmall platform, Luxury Pavilion in particular, we also went to open an start front into SOHO [Phonetic], which is a new section of the site we have launched, and also Tmall Global for certain brand.

They not only have 757 million customers, so considerably more than JD and they have the intent. They have the female customer. They have fashion as one of the core categories that we know, the core category at JD Electronics. And so clearly we believe the intent is there, and also there is an incredible alignment of visions. When I met Daniel and he was talking about New Retail, and I'll check my in 2016, and vision really the convergence of physical and digital retail, I checked and it was the same year 2016 where we has the potential as outlined augmented rebuild, which was our own name for that same strategy. We now combine the two name that its called Luxury New Retail powered by Farfetch, and it's a global initiative.

So, we immediately saw we have an upside here not just in China, but an opportunity globally to really leverage in Alibaba's best-in-class, really, there is no other company in the world that has branded to the magnitude and extented timing to really believe a decision. So absolutely fantastic alignment in the global strategy and how we see the world. And the data shows the intent and the client base is a much better fit for us quite frankly. And we also structure the deal in a way that I think aligns incentives. As you know we are going to launch a joint venture, and where Alibaba and Richemont will own 25%. They can build up certain milestones actually to 49%, so that I think aligns insures operationally on the ground in a very, very strong way. So, we're very, very confident and of course, this will take time. We expect to conclude the JD structuring in the first half of 2021 and then very relatively quickly after that launch the AliBaba storefront -- the Tmall storefront shall I say, and I think obviously it will have full impact in 2022, as we then starts to optimize the channel, etc. That's a very exciting, not just about the China opportunity per se, but also about the global opportunity that we have in hand.

Elliot Jordan -- Chief Financial Officer

And Stephen just on LTV CAC and NGG, the first-party original, there is absolutely no doubt in my mind that having the brands from the New Guards Group on the marketplace is driving down the engagement cost with customers. It's interesting that actually we've talked a lot about FY, but Palm Angels has absolutely rocketed up. Now listed brands always at the last couple of months and is growing very, very rapidly within the Farfetch Marketplace.

I look at baskets that include an NGG brand and other brands, and the growth of those baskets year-on-year is in triple digit. So we're seeing this halo effect coming through by having original content on the platform and customers buying them to the other brands. It's also allowing us to speak with real conviction around our editorial and the proposition to customers through the app, through our email campaign, through the online editorial, and that is continuing to drive strong engagement with customers.

When I look at the LTV over CAC, and again what I said earlier on around the Q2 cohort that 500,000 customer cohort that we acquired three months ago now. If I go all the way back to 2017, there were only two quarters in that history, Q1 2017 and Q3 2017 that have had a higher three-month LTD over CAC than this quarter just gone. So, all through last year -- all through 2018, we've been -- we're now ahead of that in terms of this Q2 cohorts, LTV over CAC. So it's a phenomenally powerful cohort, and it's not only the lower demand generation that Gareth and our team have been doing in terms of using data to really focusing on customers that are going to buy, reduce wastage in terms of bidding and the treating from markets that we don't want to, but this ability to shift away from paid search into lower cost channel, social media, the email and push notifications.

But it's also on the promo sites. The promo reducing significantly year-on-year has helped push up the lifetime value of this cohort as well. So everything is working perfectly for us to be able to engage with customers, and the good news is that means paid sheer of GTV has dropped down this quarter year-on-year versus previous quarters where it's hovered at a pretty consistent level. So we've been able to drive more organic engagement as well on the back of all this that we're doing to engage with customers. And of course, the relaunch of the Farfetch brand has also been instrumental in this. I think it's really resonated with our customer base, and we're able to drive customers in a more organic way.

Final point and then I will pass to the next question. Referrals GTV from referrals was up over 100% year-on-year. So our customers are also telling their friends and recommending by that referral feature to shop on Farfetch, and that's driving great engagement as well. So I think everything fits us up well for next year.


Our next question is from Lloyd Walmsley with Deutsche Bank. Your line is open.

Lloyd Walmsley -- Deutsche Bank -- Analyst

Thanks. I got two questions, if I can. First, just on the new platform solutions websites launched in 2020 that contributed to Q3. Can you just give us a sense for how much that contributed growth and kind of the pipeline looks like for Platform Solutions. And then secondly, just as we think about Farfetch joining Luxury Pavilion, do you think that may -- that combined with just the pandemic may hasten luxury brands to develop their own presence more on the platform, since you're kind of effectively bringing them on there. And how do you think there will be an interplay between retail store on Luxury Pavilion versus like others having a presence there, how do you think about it, how should we think about it?

Elliot Jordan -- Chief Financial Officer

Lloyd, hi. I'll take the first question on...

Lloyd Walmsley -- Deutsche Bank -- Analyst

Hi, Jordan.

Elliot Jordan -- Chief Financial Officer

FPS. And I'll let Jose take the question on China. So, I'm not going to break it out unfortunately. So it's going to be a short answer to your question around the impacts from the brands on the growth rate, but the pipeline is looking good. The rest of this year is more focusing on further brand from the New Guards Group collection, but then we've got a very strong pipeline of third-party brands to launch starting in Q1 next year. But once we're closer to that. I'll give you a better update then.

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

So, I'll take the Luxury Pavilion question. We think it's very complementary. So you have essentially two types of brands, let's say brands that already has store front on the Luxury Pavilion, our plan to open one, and brands that due to their scale is not easy to open a company in China, or even if you don't want to open a company to find a TP [Phonetic] produce specific inventory. And let's not forget that every product within the Luxury Pavilion is in China have crossed the border, and using the dedicated stock just for that channel. And that is done by third parties called TPs, Tmall partners, that's the model. And this model is very high cost in terms of opex, but very high risk as well because obviously you have that stock linked to their channel.

And so what we do, and I think that's incredible breakthrough for the industry is bringing the global offer from the 3,500 brands that are on the Farfetch platform, 550 of them with e-concessions to bring that global inventory to triple Luxury Pavilion. What does that mean? It means that if you're a brand, we have a store front on Luxury Pavilion and you have let's say 100 skews. By the way you will find that typically that's the number of skews that even the large brands have. So they don't have thousands of skews like they have on the Farfetch marketplace. So, if you're one of those brands, you certainly capture a much larger share of voice in that channel by adding on Farfetch, on the Luxury Pavilion, as opposed to not doing that.

And then we have very exciting medium brand -- medium size brands, small brands even brands 100 million, 150 million, 200 million [Phonetic] brands would find it relatively difficult to set the commerce operations in China and even to sell in a marketplace. So for those it's a unique opportunity. It's one single integration, and your inventory is available all around the world, including in China on the Farfetch app and now including in the Luxury Pavilion, and, of course, if you look Soho, Tmall Global in the future as well.

So, we think it's an incredible proposition, and this is what Farfetch had cited on both our Alibaba and the brand had cited. Of course, this announcement comes with the endorsement of the Tmall, comes with an increased shareholding from Artemis, and which share decision and also share the Luxury New Retail global vision which we feel very, very, very confident about.


Our next question is from Louise Singlehurst with Goldman Sachs. Your line is open.

Louise Singlehurst -- Goldman Sachs -- Analyst

Hi. Good evening, Jose and Elliot. Thanks for taking my questions. You must be absolutely delighted. It's a great path to EBITDA turning positive well in Q4. I'll just touch on these questions which is asked already. I wondered if you could just elaborate a bit more on that balance, and if you look to this in terms of obviously management growth and the profitability of the platform, but obviously I think you very much forgive them to sending a bit more to drive even for the fourth quarter pace of the growth. But I suppose the question is that do you really got 2.7 million customers today? Is there a turning point into the platform in terms of customer engagement beyond the actual active user numbers, also that in the brand awareness of Farfetch because I think the 2.7 million across three regions is still quite a low number.

And then secondly, related to that, I wondered if you would help us think about the regional growth, I know that explicit in terms of the detail, but if you could give us a rank particularly interested in the China number following details from last week. Then lastly, I wondered if you could just talk about obviously, Jose, obviously the benefits of getting some of the brands now direct, obviously, Moncler has been -- Moncler product has been available on the platform just on time, but the benefit of having the direct relationship and what that means in terms of inventory and driving traffic? Thank you.

Elliot Jordan -- Chief Financial Officer

Hi, Louise. Good speaking to you and very good questions as always. Thank you for that. I think, Q4 with the momentum that we've got behind us and the amazing work that the team has been doing to deliver scale and leverage. If you think about our technology platform this quarter, 8% of adjusted revenue that's driving significant scale and leverage year-on-year, we're able to get to profitability on 40% to 45% growth next quarter. It was higher growth. I would see that flow through to -- potentially more profitability rather than us sort of cutting back on growth rate to try and get to profitability. It's not about that all really, it's about balancing what we think is the right growth for the platform and our suppliers on the platform over this quarter, which I think will be more promotionally heavy not by us but by the market.

And would we want to spend on promotions just to attract customers that we're wanting to bind on promotion to deliver a faster growth rate. Probably not, because the history of the customers that initially buy with us on promotion shows that they are not the strongest cohorts in terms of lifetime value over the long run. And we've been down the path before where we keep spending on promotion, because we wanted to make sure we didn't miss a single customer that was visiting us. Well, that didn't work out in terms of great LTV. What does work out is the digital marketing team focusing on a customer group that is going to be with us for the longer-term. And we've seen that over the last couple of quarters, live promotions means a higher LTV in the short term and we believe over the longer term.

So, although I do agree with you 2.7 million active consumers in this market is a number that leaves us with significant opportunity from here on, and is it right to pull the promo handle in the next 13 weeks, well, no next sort of six to eight weeks, just to acquire them now when they're going to be promo customers, I don't think so. I think it's better to envied everything we are doing in terms of engagement, the brand work to build a client base that's really strong over the coming quarters and is actually earlier on in a sustainable level of growth, which 40% to 45% is pretty good in my view in terms of what we're now expecting.

So, it's really more about the customer cohort that we would be shopping -- that would be shopping with us if we were to change anything there. In terms of your regional demand question again, we don't break this out too much, but I would say that we saw all three of our regions accelerate growth. So from Q2 into Q3, all three regions ticked up in terms of year-on-year growth rate.

Actually the Americas stepped up more than any other market, any other region, and that was coming through again by the focus from the team and to Mexico. The U.S. was particularly strong in terms of year-on-year growth, Q3 versus Q2. You remember last time we spoke, I said the U.S. had sort of woken up toward the back of Q2 and was driving growth in the early parts of Q3, that delivered a fantastic acceleration. And also say all other markets accelerated. China in a very good place, particularly Mainland China. We are still seeing challenges in Hong Kong in terms of growth, but Mainland China is doing well. And then lastly, Middle East, very strong year-on-year, U.K., very strong year-on-year. So I think we've got the broad base of customers from across all three regions.

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

And Louise, I'll take the question on Moncler and what changes. I think -- first of all, Moncler is one of our Top 10 brands, even just with the wholesale channel. So very, very exciting to see this brand. It's one of the very few brands in our Top 20 brands, that is -- that was not direct. I think we have maybe another one. And so that's an excellent record from our commercial team. And I think what is open, well, first of all as you know brands have and Moncler has outlined their digital strategy and has been clear also on how they want to divest from wholesale and double down on direct-to-consumer, and this is an example of exactly that. So they're building down on direct-to-consumer channels with their e-concession on Farfetch. So that means the direct presence on the platform becomes more and more important as the brands divest from wholesale.

Important to note that all our competitors are wholesale businesses, right. So Farfetch is the only global online luxury destination at scale and -- that operates an e-concession model, and the Number 2, Number 3, Number 4, Number 10 player is essentially a wholesale, it sound for these brands, which means, what we expect to see our competitors with less and less access to supply, and obviously, we continue to be able to grow in that with these brands since they are prioritizing our channel. But that's not the end of it. I think the most exciting is, we start to develop a different quality of partnership, right?

So when we -- what we see when we sign these brands, as we start to do exclusive, it starts to be the partner of choice for new products, for new launches. They start to see the incredible power of the platform in terms of reaching the millennial customer. Globally, we have I can point you some examples. This year we launched Gucci Off The Grid cat fill [Phonetic]. Before then we did a global event with Balenciaga, including the first joint show in China, physical trunk show in China with Balenciaga and our VIP customer base. All of these things are very exciting and they only come, obviously, when you have direct relationships with the brands in the shape of e-concessions.

And what we see is, they start then prioritizing us over other multi-brand online channels, not just because they have double the margin, let's say [Technical Issues] certainly double the revenue and give or take double the margin, but also is a direct-to-consumer relationship. They get much more granularity in terms of the data, they had full control of pricing and merchandising. And so there is many advantages beyond the depth of stock, but obviously depth of stock as we continue this growth, this 60% base in Q3, 40% to 45% in Q4, it's essential that we have like bottomless access to inventory in the years to come, two, three, four, five years, in fact, extrapolating these numbers. Having these e-concessions is really important for us.


We have time for one more question. The final question comes from Eric Sheridan with UBS. Your line is open.

Eric Sheridan -- UBS -- Analyst

Thank you for taking the question. I'd love to ask a two-parter directed at each of you. With the utilization you're going to have at the end of this year and then raising the capital you're doing on the back of the transaction with Alibaba, how should we think maybe for you, Jose, strategically, and Elliot, for you sort of financially as part of some investments you want to make, broadly about deploying that capital, how should investors think about, what sort of the priorities are after deploying that capital against your growth objectives and driving equity returns? Thanks so much.

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

Elliot, do you want to take the question? You're the treasury man.

Elliot Jordan -- Chief Financial Officer

Yeah, absolutely. Sorry I was just on mute, the classic answer to any question over the last six months. Yeah, I think, Eric, as you point out, we are extremely well capitalized $757 million at the end of the quarter and that should get up to $800 million by the end of the year due to working capital. And the transaction last week, it wasn't about boosting the balance sheet, it wasn't about raising money, that was about making sure we've got meaningful alignment between ourselves and the strategic partners, and the cash is the output of that focus, really. I do think the investment means we've got very aligned interest in China and global business. And we look forward to working with our partners.

The cash, as it stands at the moment, has got no specific purpose other than continuing to invest behind the great results we are seeing on the platform as we help the whole industry navigate the shift online, we won't be doing anything other than focusing on our strategy of evolving the business to support the growth online with 12% market share now moving to 30% in the next five years. Farfetch is going to lead the way with that, and the funds that we have will be used to ensure we are taking advantage of any opportunities to drive good return for investors over that time period. I don't think it's an excessive amount of cash to have. I think it's a good level of reserves for us to be able to deploy as we need to. But it doesn't take our eye off the ball of continuing to drive growth, focus on unit economics, profitability for the full year, next year. And if anything else comes along, we'll see what happens. But at this stage, we will put it straight into good investment on the bank -- in the bank.

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

I think that's probably it. Unfortunately time is up. We look forward to speaking to you again in three months' time, and Alice and Diana are available, of course, as always, as you have any more questions for the Investor Relations team. Thanks everyone, and speak to you in February.


[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Alice Ryder -- Vice President, Investor Relations

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

Elliot Jordan -- Chief Financial Officer

Douglas Anmuth -- J.P. Morgan -- Analyst

Stephen Ju -- Credit Suisse -- Analyst

Lloyd Walmsley -- Deutsche Bank -- Analyst

Louise Singlehurst -- Goldman Sachs -- Analyst

Eric Sheridan -- UBS -- Analyst

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