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Farfetch Limited (FTCH)
Q3 2021 Earnings Call
Nov 18, 2021, 4:30 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good afternoon. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Farfetch Third Quarter 2021 Results Conference Call. [Operator Instructions] Thank you.

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

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Alice Ryder -- Farfetch Limited

Hello, and welcome to Farfetch's third quarter 2021 conference call. Joining me today to discuss our results are Jose Neves; our Founder, Chairman and Chief Executive Officer; Elliot Jordan, our Chief Financial Officer; and Stephanie Phair, our Chief Customer 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 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 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 4, 2021.

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, Chairman and Chief Executive Officer

Thank you, Alice, and thank you all for joining us today. On this call, I will give you an overview of Q3 results and share how we navigated the dynamics over the quarter, as well as touch on the stronger trends we're seeing to date in Q4. I will also cover the exciting developments we're planning for our Luxury New Retail vision and our FPS business unit, and finally, provide a quick review of some of our strategic initiatives for 2022.

Starting with Q3. In Q3, Farfetch extended our track record of delivering aggressive market share capture. Digital Platform GMV increased 23% year-on-year in Q3, with Group GMV up 28% year-on-year, and we are continuing to demonstrate significant market share capture at a faster rate than our 30% CAGR target. We accelerated our two-year stack Digital Platform GMV growth from 89% in Q2 to a tremendous 97% in Q3. No at-scale luxury fashion company, including e-tailers, has reported such fast growth.

While this growth was unrivaled, our results fell short of our forecast as the extraordinary full-price growth rate we had seen through the first part of the quarter shifted to what were still very high levels, but lower than what we had seen exiting Q2 and during the first part of Q3. The reality is, it's very hard to predict the evolution of explosive sales growth in an unprecedented market environment. In Q3, we had to forecast against both strong comps from 2020 as well as hyper growth of our full-price sales at 90% year-on-year exiting Q2.

In September, we saw a later start to the Autumn-Winter '21 season. At the macro level, Google Trends indicates the impact was industrywide, with slower search growth for our luxury products in Q3, which has shown signs of recovery since then through October. In other words, what was hyper growth in full-price sales at 90% year-on-year exiting Q2 shifted into high growth in the crucial Autumn-Winter '21 full-price month of September. The shift in demand, combined with IDFA, contributed to higher demand generation costs, resulting in lower levels of profitability than what we had expected for the quarter.

During this period, the teams have invested in order to test and learn how to navigate this macro environment. And I'm delighted to share that in Q4 to date, we're back to our previous levels of profitability while continuing our strong market share capture. Through the first six weeks of Q4, we have seen regular improvements in our largest market, U.S., and the China Singles Day event earlier this month was strong. Overall, this puts us on track to deliver Digital Platform GMV growth of 18% to 22% in Q4, which translates to circa 80% growth on a two-year stack.

Our Q3 decision to use our profitable LTV over CAC ratios to test and learn how to adapt our demand generation strategies in the face of IDFA and other media inflation pressures has already delivered meaningful improvements. And so far in Q4, we have seen a recovery in demand generation as a percentage of sales. And order contribution is on track to be 30% to 35% in Q4.

Moving to Luxury New Retail and our FPS segments, where we have some key strategic developments. We always said Farfetch was more than just a marketplace. We are on a mission to build the global platform for luxury. We believe luxury is going to be revolutionized by the digitization of the physical experience. We call this Luxury New Retail or LNR, the seamless merger of both offline and online modes of shopping. And I believe 2022 will be a year where FPS will expand and unlock significant potential for Farfetch.

Our platform can be leveraged in many ways. Our current flagship product is the FPS end-to-end suite of e-commerce SaaS solutions, where we count Harrods and over 20 other luxury companies as clients. You will have read the announcement from Richemont, which describes the potential adoption of this end-to-end FPS suite, both for their Maisons and YNAP, as well as Richemont Maisons joining our Marketplace. I want to reiterate that there is no guarantee any deal will be successfully completed. While we work on progressing these conversations, we continue to have a strong FPS pipeline of other enterprise clients, and we've seen an acceleration of discussions now that the post lockdown phase of the COVID-19 pandemic has been stabilizing.

Let me walk you through what's getting luxury brands and retailers incredibly excited about FPS. One, connected retail, where we have Chanel, Browns and Thom Browne among our clients is a truly revolutionary technology that fundamentally changes the experience of luxury customers in store. Two, our CuriosityChina team offers best-in-class China expertise and the suite of products that has enhanced the digital presence in China for a circa 60 luxury brands, including Armani, Audemars Piguet and Moncler. Three, we have launched this year our e-Concessions as a service solution, which transforms luxury retailers into marketplaces and allows brands to streamline their distribution. If they are already one of our nearly 600 e-concessions, they can do this with minimal work. The results are extraordinary and a win-win for retailers and brands, with sales from e-concessions powered by FPS for Burberry, Zegna and Brunello Cucinelli, growing at harrods.com to the tune of triple-digits year-on-year since launch.

The major milestone for this product was achieved this month with the launch of the Gucci e-Concession. As a result, Harrods has access to more than 7 times as many Gucci SKUs as were previously available on harrods.com. Looking more broadly, the TAM for marketplace SaaS solutions, which convert retailers or even brands into marketplaces, is booming with companies like Virco reaching multibillion-dollar status. We have a unique proposition here, as I believe we are one of the few marketplace SaaS solutions in fashion and, in my view, the only one with at-scale credentials in luxury. And as such, these two stand-alone represent a very large opportunity for Farfetch in the long term.

And last but not least, for our uniquely compelling FPS global payments and logistics capabilities enable clients to sell, receive payments and handle logistics in 190 countries out of the box. Companies like Global E have shown the multibillion dollar potential of this area of the SaaS industry. I believe Farfetch has a stronger offering than others with unrivaled presence, alliances and expertise in China, but also Middle East, Russia and Latin America, markets that are crucial for luxury, but also key for other fashion companies in general. And in the long term, we will aim at building a very sizable business out of this stand-alone FPS module.

While many of our new prospects are interested in the FPS end-to-end suite, others are preferring to initiate their use of our platform by using one or more of these FPS modules, which we think is a great way to expand our offering with quicker sales cycles for the future. And each of these modules represent, I believe, a multibillion dollar TAM on their own. In 2022, we plan to modularize our offer further, which will also allow us to broaden the appeal of these solutions expanding from luxury to other segments of the market. Watch this space.

To summarize, I believe 2022 will be a pivotal year for our platform vision for LNR and for FPS. There is a lot to be done, and we're really in day one of this opportunity. But I continue to maintain that this platform vision expands our potential as a company in a very powerful way.

As we approach the close of the year, we are also now focused on 2022 in terms of our longer-term bets for the marketplace. And I'd like to provide a preview of how I am envisioning next year. To start, I believe we will exit 2021, and in fact, what were the hardest two years in the recent history of luxury, stronger than we've ever been, to kick off 2022 with incredibly powerful dynamics in all areas of our business and all regions.

I'd like to highlight three of our key strategic initiatives for 2022 that are of particular importance and expected to deliver long-term impact to the marketplace. First, our beauty launch is on track for next year, with exciting partners to present a compelling crossover proposition to luxury consumers. Stephanie will update you further on this initiative.

Second, we will be investing behind ad tech and building out our media solutions team to develop a meaningful advertising business over the next two to three years. Media solutions posted another record quarter in Q3, with campaigns for a wide range of brands from Prada to Margiela to Balenciaga, Armani, among many others. Also, we see further opportunity in working with our new beauty brand partners to enter the enormous beauty advertising market.

Third, in 2022, we will double down on fulfillment by Farfetch, with many initiatives to boost the volume we ship from our distribution centers in the U.S., EU and China region. This will be a major factor in reducing our long-term logistics costs and boosting our order contribution over the next few years.

I will now let Stephanie update you on all things, brand and customer.

Stephanie Phair -- Chief Customer Officer

Tank you, Jose.

Our ability to continue to deliver industry-leading two-year growth against a shifting market backdrop in Q3 demonstrates the strength and resilience of our business. Let me take you through three key areas of focus on the demand side: first, the continued strength of our high-quality customers; secondly, our demand generation strategy in Q3; and third, our continuing brand and building efforts.

I'm delighted to share that in Q3, we continued to grow our customer base, growing our active consumers 31% year-over-year to 3.6 million. Crucially, this growth has delivered high-quality customers. Customers joining since Q2 2020 have, on average, exhibited higher spend per customer. In addition, customer retention is tracking ahead of 2019, and new customers have been upgrading Access tiers faster than their predecessors. This demonstrates the benefits of our efforts around full-price sales, targeted marketing and focus on personalization.

We are also seeing strong performance from our most valuable customer tier, our private clients, whose year-on-year GMV growth outpaced the marketplace in Q3. The number of transactions exceeding $100,000 has quadrupled year-on-year in Q3. And in October, our Fashion Concierge team supported a customer with a $1.3 million transaction, setting a new record for our highest ever sale. This strong momentum demonstrates the benefits of our differentiated approach to serving these highly coveted customers.

On demand generation. On the back of our strong growth expectations exiting Q2, coupled with our six-months LTV to CAC payback ratio, which gives us the headroom and confidence to flex our demand generation spend in quarter when appropriate, we made the strategic decision to invest in customer acquisition in order to test and learn how to navigate this new IDFA environment. Our demand generation, as a percentage of revenue, was higher than initially planned for Q3 due to three main factors: greater-than-expected PPC inflation, which was then further magnified by an increased number of participants bidding for customers in lower funnel channels, most likely due to IDFA; and additionally, when our conversion rate declined in September on lower-than-expected full-price sales, we made the strategic decision to continue investing behind mid-funnel marketing capabilities, which have a longer payback period.

Importantly, this period of testing and learning is already generating results through a combination of measures. By broadening our lower funnel mix, focusing on personalization and moving up the marketing funnel, I am delighted to share that in Q4, we are already seeing an improved level of demand generation as a percentage of Digital Platform Services revenue.

Moving on to the brand. Building a strong brand offers us three key benefits. First, as we continue to navigate through this changing environment, brand investment will continue to drive value where we are applying the rigor we have gained through our performance marketing expertise as well as fast data resources into these channels. Second, it builds an emotional connection with our consumers, which we believe over time drives efficiency in all channels. And third, it strengthens our offering when it comes to brand partnerships and media solutions, making us a key partner for brands to work with on launching their products and collections and, in turn, offers more compelling stories and products for our customers.

This is more important than ever, as luxury brands are placing even greater value on our first-party data in helping them target relevant audiences in light of recent IDFA privacy provisions that affect them as well. Based on the strong traction and potential, we plan to invest further in our media solutions capabilities in 2022 and significantly expand available inventory to enable much stronger growth of this high-margin business in the mid- and longer term.

Finally, on beauty, we are excited by the fact that we will offer mix of both large and indie brands in the makeup and skin care space, and continue to ramp up our conversations as we carry on building the technology capabilities for this exciting opportunity. As we have mentioned in the past, we intend to enter beauty in an only on Farfetch way, with a very compelling consumer proposition, generating excitement through storytelling between fashion, beauty and innovation to appeal to fashion lovers in an unrivaled way.

And with that, let me hand over to Elliot to take you through our financial performance.

Elliot Jordan -- Chief Financial Officer

Thank you, Stephanie, and hello, everyone. I'd like to take you through the key drivers of our financial performance for our third quarter of 2021, in particular, the strong growth in GMV and revenue, the factors impacting Digital Platform order contribution margin within the quarter and recent strategies that have already bought order contribution margin to above 30% quarter-to-date, significant operating cost leverage, and profitability at the adjusted EBITDA level compared to a loss in Q3 of 2020. I'll also touch on the strong start we have seen in Q4 2021.

Starting with Q3 GMV, which grew 28% year-on-year and 107% on a two-year basis to just over $1 billion. This was a record Q3 and our third quarter in the last 12 months with GMV over $1 billion. The Digital Platform GMV grew by 23% year-on-year to $828 million. The two-year growth accelerated from Q2 to 97% year-on-year, which equates to a compound annual growth rate of 40%, substantially ahead of our longer-term target and demonstrating significant market share capture.

Our first-party business, which includes first-party original, grew 26% year-over-year due to strong demand for Browns and New Guards brand products, and we achieved 22% growth in third-party GMV. Digital Platform GMV growth was below our guidance because full-price growth came in at circa 40% year-on-year versus 90% across Q2, in part due to a lower-than-expected demand for new season Autumn-Winter '21 collection in September.

Within the Brand Platform, we have achieved 47% year-on-year growth in GMV to $165 million due to very high demand for new season products from the Palm Angels brand, as well as continued strong demand for Off-White products as the brand continues to broaden its product range to great appeal. In addition, we have compressed Autumn-Winter '21 deliveries into Q3 this year compared to last year with the delivery window stretched across Q2 and Q3. Year-to-date, the Brand Platform has grown 22% year-on-year.

Finally, our in-store GMV grew by 106% year-on-year and 159% on a two-year basis to $24 million, thanks to new store openings for New Guards brands, including the first directly operated store for Palm Angels in Miami, Florida. The Farfetch Group now has full control of this brand, and I'm pleased to see growth of its total revenues across all channels accelerate to make a meaningful contribution to overall profitability.

Group revenue grew at 33% year-over-year or 129% on a two-year basis. Adjusted revenue grew 30% year-over-year, driven by the strong GMV growth in the Brand Platform, 26% growth in our first-party business on the Digital Platform and the highest level of media solutions revenue in a quarter, with strong campaigns from a wide range of brands, including Prada, Balenciaga and Armani, among many others. This revenue enabled us to achieve a third-party take rate of 30.1%.

Turning to our Q3 Digital Platform order contribution margin, which was 26% compared to 37% in Q3 2020. The year-on-year movement is primarily attributed to three factors. First, we have continued to see high cost inflation in relation to global shipping and increased duties, which grew over 60% year-on-year, compared to GMV growth of 23% in the Digital Platform. We have continued to put consumers first by absorbing some of this cost inflation. This is evidenced by the 53% fulfillment revenue growth, which was below the increase in associated costs. The difference reduces gross margins for the Digital Platform.

Secondly, markdown activity within the first-party business where gross margins declined from 36.7% to 31.7% in Q3 2021.

And third, demand generation expense, which stepped up as a percentage of Platform Services revenue from 18% last year to 23% this year. Stephanie has outlined the various factors contributing to this change, including the impact of IDFA, inflation within search engine marketing, and increasing use of mid-funnel engagement channels with a longer payback period.

I'm pleased to report that we have taken actions to improve Digital Platform order contribution margin, which is expected to be between 30% to 35% in Q4. In particular, demand generation expense cost of sales percentage has reduced as our digital marketing teams are successfully balancing cost across a number of channels. We have revised our charging strategy for shipping, duties and payment processing. It is clear that these costs have increased over multiple quarters with no indications of reversing in the near term or at all. As such, we have begun to align our practices more closely with other operators by sharing these increases with consumers and sellers on the platform. The full effect of these changes will be felt in order contribution margin for the full-year of 2022.

Finally, in relation to Q3, we have achieved substantial operating cost leverage. As you would expect, we are managing the cost base extremely carefully in the current environment. The operating cost of our technology platform and G&A totaled 34% of adjusted revenue compared to 45% in Q3 2020. This improvement is being driven by the scale of the platform and investments to date to drive growth with minimal incremental costs, particularly in the areas of operations, customer services and technology. Also within the stronger leverage is a partial reversal of year-to-date accrued expenses related to executive bonuses.

We also closed the quarter with strong liquidity of $1.3 billion following the receipt of an aggregate $500 million from Alibaba and Richemont in relation to the formation of the Farfetch China joint venture. Our positive EBITDA, as planned, and stronger year-to-date EBITDA, which is $23 million ahead of last year, positions us well to deliver profitability for the full-year as we trade through the critical fourth quarter.

And I'm pleased to report that Q4 has started well. Singles Day was a success with both our China app and our store on Tmall's Luxury Pavilion contributing to record-breaking sales. We have also seen regular improvements in the U.S. market growth through the first six weeks of Q4, driven by consumer demand for full-price Autumn-Winter '21 collections.

We expect next week to be our biggest ever week on the marketplace, centered around our offering for Black Friday and KOL campaigns across Mainland China. We then enter the holiday trading season with a strong product offering in consumer editorial. In particular, stock levels are high with Autumn-Winter '21 stock value from our top 20 brand partners up 55% year-on-year and overall stock up 35% year-on-year to $4.4 billion as at the start of Q4. Average SKU depth has increased 28% year-on-year, which means we have more of the key selling lines for the holiday season.

It's worth noting that the fourth quarter is heavily dependent on the next six weeks with much of the critical holiday trading period still ahead of us. Taking all of this into consideration, we expect Q4 digital platform GMV growth to be between 18% to 22% year-on-year, which would represent two-year growth of circa 80%. Brand Platform GMV is expected to grow between 20% to 25% in Q4. Digital Platform order contribution margin is back above 30% quarter-to-date, and we expect to achieve Q4 '21 margin of 30% to 35%.

And finally, we expect to deliver positive adjusted EBITDA of circa $40 million. We expect this performance to result in full-year Digital Platform GMV growth within the initial full-year guidance for 2021 and ahead of the longer-term target we set ourselves. Full-year adjusted EBITDA is expected to be around $5 million. This is below the original 2021 margin target of 1% to 2% due to the prolonged impact of unprecedented cost pressures such as digital services taxes, shipping and a multimillion dollar impact to our platform margins due to the UK's withdrawal from the European Union. Our migration of fulfillment by Farfetch volumes from the UK to the Netherlands will help mitigate these Brexit costs moving forwards.

2022 is expected to be a year of growth in line with our long-term target of at least 30% growth at the GMV level, improved order contribution versus 2021 and sustained profitability at the adjusted EBITDA level. I look forward to providing you with more specific 2022 guidance on the Q4 earnings call early next year.


Jose Neves -- Founder, Chairman and Chief Executive Officer

Thank you, Elliot.

To sum up, there were some shifts we had to navigate in the market, particularly in September, but Q4 is back on track. Clearly, our direction of travel is unchanged and our strategic initiatives for 2022 are very exciting.

Q3 marks 18 months since the COVID-19 pandemic brought on global store closures and travel restrictions. We exit this period as the largest and fastest-growing online global destination for luxury fashion, with 3.6 million active consumers. Crucially, where consumers go, brands follow. Our top 20 non-NGG e-concession brand partners increased listings by more than 170% since first quarter 2020. This resulted in a tripling of our higher-margin direct-to-consumer sales for these brands over the same period. We approach the holiday season with a very positive outlook. Q4 has started strong, and I'm looking at 2022 with extreme confidence.

In 2022, I believe we will continue to capture market share with growth of at least 30%, which since IPO has been our targeted CAGR, while solidifying our margins and profitability and investing for our long-term platform growth initiatives.

A huge thank you goes out to our more than 6,000 Farfetchers for all their efforts and contributions throughout the year.

Thank you for listening today. We will now be happy to take your questions.

Questions and Answers:

Alice Ryder -- Farfetch Limited

Thank you for your questions. Thank you for your questions. The first question today comes from Oliver Chen of Cowen Securities. Jose, maybe this is the first question for you. What are the main parameters on evaluating the options for a possible Richemont-Farfetch deal? What synergies could you highlight for Farfetch? And why might a deal be more or less attractive?

Jose Neves -- Founder, Chairman and Chief Executive Officer

Thank you, Oliver, for the questions. I really won't offer more commentary than the statement we've made last week. You will have read the announcement from Richemont, which describes the potential adoption of our end-to-end FPS suite, both for their Maisons and YNAP, as well as the Richemont Maisons joining our Marketplace. I want to reiterate that there is no guarantee any deal will be successfully completed. So we progress in negotiations, and we will keep you in front as to when it may be. Thank you.

Alice Ryder -- Farfetch Limited

Thank you. And also the second question, Stephanie, if you could take this one, please. Near term, what's happened in September? Why was there a later start to the season than you previously expected? And regarding the IDFA changes ahead, what are the new risk factors ahead and what part of the funnel are you focused on, and/or the channels you're spending on?

Stephanie Phair -- Chief Customer Officer

Yeah. Thanks for that question, Oliver. So I'll take the IDFA piece first. And as you know, IDFA is an ongoing factor in that changing marketing landscape. And really, it affects everyone in the industry and beyond that engages in online marketing. It specifically impacts the ability to retarget customers using third-party tracking. But this is not the first time that Farfetch has had to deal with sort of macro changing landscape. And we've been navigating changes for over 10 years, and I believe that we're very well placed to continue to navigate these changes. We've built years' worth of expertise in performance marketing. We've invested a huge amount in automation that really helps our bidding engines and drive efficiency. And we can make use of our robust data and use the first-party data.

And so you asked about mid-funnel specifically, and I'll take it a little bit more broadly, what are the things that we are doing of significance at some of these IDFA factors? And there are two. One is broadening our approach to marketing. And that's, for example, thinking about other channels that are not subject to IDFA. For example, as you might expect, Apple's own search platform is one of those. But really thinking about push notifications, for example, which is really growing and seeing very good results.

And then the other, as I stated, was moving up the marketing funnel. And this is very exciting because, in many ways, it fits with our brand building. I've been talking about brand for a while now, and this is a big part of chapter 2 for Farfetch. And so it's exciting because really what we're doing is combining our performance marketing and our brand building and again, applying that rigor that Farfetch has built over years. And so this is not new. We've been doing it for a while. App downloads is one way to do it. It has longer payback, but it is a high-quality customer. And as you've seen, app is the larger part of our business, but it's also evidenced by the fact that we're acquiring a high-quality customer.

We're focusing a lot on prospecting and lookalike audiences. Again, our data expertise plays well into that channel. We've done a lot of work with YouTube, for example, that allows us to really use our content, but also think about it in a, sort of, much closer transactional piece. And then we've invested a lot in influencer marketing, which again links content and storytelling with transactions.

So I'm very proud of the team and how we've been navigating this. And despite a number of factors, IDFA being one of them, that really hit us in Q3 toward the back end of the quarter. I'm really pleased that through all of this test and learn, we're exiting the quarter in a good pace and we're already seeing our demand generation spend more in line with the recent percent.

Alice Ryder -- Farfetch Limited

Thank you. Next one questions comes from Doug Anmuth of JPMorgan. Jose, can you talk about China a little bit more and the recent GMV trends, and whether your long-term outlook has shifted at all due to recent regulation and prosperity initiatives?

And then the second question, is about the investments that you're focused on in 2022 to expand the advertising business for brands in Maisons and how you think about how much advertising could add to the take rate in the time?

Jose Neves -- Founder, Chairman and Chief Executive Officer

Yeah. Listen, I think, in China, there's a tremendous, tremendous opportunity for Farfetch, and we remain extremely bullish about China. It is already the second largest luxury goods market in the world, our second largest market as well for Farfetch. It will be the largest luxury goods market in the world. I think with the pandemic and the travel restrictions, there was a major repatriation of consumption, which I think is here to stay to a large extent, which means digital channels are paramount because there are tens of millions of luxury customers in China. They're scattered in literally hundreds of cities as Tier 1, Tier 2, Tier 3 cities. And therefore, online is the way to reach these customers.

Here, Farfetch has a unique position. We're really the only Western luxury e-commerce at scale playing in the market with unique capabilities and a very large business already. We have an alliance with Alibaba and Richemont. And I think we have an incredible opportunity to really capitalize on the strength we see in that market, and we're executing to that effect.

You will have noticed that China as we reported just today, again, Mainland China grew faster than the marketplace. And I think that there are tremendous tailwinds. And these tailwinds are much, much stronger, specifically in online luxury than any hypothetical side winds that you've mentioned in your question that are, at the moment, just hypothetical. But the tailwinds and the secular trends are still so strong. We have such an incredible competitive position that I remain very, very bullish about China.

Regarding the media solutions business, I think the first thing to note is that we have the most important thing -- well the two most important things. We have the audience. We have now 3.6 million active clients. We have tens of millions of unique visitors across our multiple store fronts. This is a very high-quality audience with an AOV of north of $600. This is unique prime territory for the luxury brands. So that's number one. Number two, we have the appetite from the brands. The brands want to do these partnerships with us. We had another record-breaking quarter in Q3 for media solutions, with the most luxurious and the larger super brands already using media solutions to launch capsules, to do campaigns, to essentially spend advertising dollars with us. And obviously, we're opening to the beauty universe, right, where there's a tremendous advertising -- beauty advertising opportunity there.

So the investments will be really around ad tech, expanding the inventory across our website and app and also in the team to really drive this business. So we have the audience. We have the tremendous appetite from the brands.

What we now need to develop is develop our inventory exponentially, as Stephanie talked about, and obviously build a team that is going to build, what I think, is going to be a very meaningful business at scale, if you look at how the marketplace, Amazon, if you think about 4% of the market share of their GMV in ad sales. I'm not giving you a short term target in any way. But I think if you extrapolate, in the long term, in the few -- the next three to five years, why not? We could certainly build a similar very, very sizable business. And, of course, this is a very profitable segment, flowing almost through to the bottom line. And I think it can also enhance the experience of the sellers on our platform. And because it's very curated and we're talking largely about endemic advertising here, it can be an elevated experience for the consumer as well.

So that's how we're building it, taking into consideration a very nice balance between what we offer the advertiser and the consumer experience because we're in the luxury space.

Alice Ryder -- Farfetch Limited

Great. Thanks Jose. The next set of questions comes from Ed Yruma of Keybanc. Elliot, can you talk about your inventory position from Fall-Winter as we head into Q4? And then the second question is, how do you feel about the receipts for the holiday, and whether or not we're seeing any delays, both inbound and any limitations on outbound?

Elliot Jordan -- Chief Financial Officer

Yeah. Thanks, Ed, for the question. I think probably the best way to talk about inventory is to break it between first-party inventory that we have on hand and third-party inventory that's available on the marketplace to sell to customers. And maybe, if I start there, as I said earlier on, we've got the highest level of stock value available on the marketplace going into Q4 at $4.4 billion. That's up 35% versus the same time last year. And actually, vast majority of that growth year-on-year is coming through from our direct e-concession partners. And the stock sort of has now shifted in terms of value toward more product coming from direct e-concession partners than the multi-brand retailers on the platform now. So a very good broad stock from the various brands.

And also in terms of SKU count, it's a bit of the key selling lines going into the season here that's also increased year-on-year as well. So we have a lot more of those key items consumers are likely to buy as we get into the holiday season. So we're in a really, really good place there.

That's -- I don't think there's any sort of significant delays really in terms of stock coming through for us to sell. Clearly, September was a bit lower in terms of demand. That wasn't necessarily down to stock. We just saw consumers maybe not so much focused in September on the full winter campaign, whereas that's picked up back now in October, as we sit here on with stronger growth coming through quarter-to-date.

In terms of the first-party inventory, we did take some markdown activity for Spring-Summer in the quarter. So you will have seen the first-party gross margins step back year-on-year. That was a contributor to the lower order contribution margin overall. So first-party gross margins were 31.5% versus close to 37% this time last year, or Q3 last year. So good clearance and markdown activity to get rid of Spring-Summer, and therefore, we enter the season ahead very focused on Fall-Winter.

And again, the Browns' stock is in a very good place. You will see the stock on hand on the balance sheet is up, something like 60% year-on-year. That's primarily driven by stock really for New Guards' retail partners. So deliveries for the quarter ahead and the Browns' positions very good, really, ready to sell.

In terms of sort of outbound as well, just to touch on that. I'm really pleased to say that the shift toward the Netherlands warehouse for Browns as part of our fulfillment by Farfetch strategy, although it was a bit slower throughout the first part of the year, it has really ramped up now. And we're actually selling a lot more of the first-party product from the Netherlands warehouse and the speed of sending metrics just knock out fantastic in terms of getting product to customers as we get into the key trading period. So really, really pleased with that transition across to the warehouse. So everything is ideally set for us to trade through Q4.

Alice Ryder -- Farfetch Limited

Sure. The next set of questions comes from Stephen Ju of Credit Suisse. Jose, when you outlined your 2022 key strategic initiative, it seemed like your efforts around Luxury Pavilion isn't your top three. So does that indicate that it's being deprioritized?

Jose Neves -- Founder, Chairman and Chief Executive Officer

No, not at all. The Luxury Pavilion start front has been a great success. We already said that can graduate. It will be a meaningful part of our Mainland China business. It already is. For example, Singles Day, we saw the power of that platform, really reaching out to customers that -- in Tier 2, Tier 3 cities that normally we don't see in our app. So we think it's a tremendous opportunity really to reach a wider audience in China and fulfill our dream of being the platform for luxury in China.

Of course, our app is where the majority of our sales take place. But we have a multichannel approach in China. We have the store on Tmall as the next most important in China. We obviously have been -- WeChat, which is more of a social media, but also it's e-commerce enabled and other channels. But we're absolutely delighted with the cooperation with Alibaba. And in fact, constantly coming up with ideas and things to do as an evolution to the Luxury New Retail announcement. We told you last time about our lab, our Luxury New Retail lab that we're doing with them.

But for us, it's more business as usual, right? It's a channel that we've opened. It's growing really fast. It's a meaningful part of our business in China. And that's why -- I'd be for hours on the earnings call, if I was talking to you guys about everything we're doing around the world. I picked three initiatives that I think are particularly interesting in terms of moving the needle for the marketplace in the medium to long term. But of course, as we have had our earnings calls and other opportunities, I will be talking about other initiatives that are going on elsewhere.

Alice Ryder -- Farfetch Limited

Perfect. And the second question from Stephen for you, Elliot, it relates to guidance. And it seems that the guidance is implying -- despite it being fourth quarter, which is seasonally the strongest, implies the transactional velocity that's at historical lows. So Stephen would just like to understand a little bit more about what the factors are underlying that guidance, whether it's promotional activity or other factors.

Elliot Jordan -- Chief Financial Officer

Yeah. It's a great question. I think as you've seen in Q3, the AOV hasn't moved the head substantially year-on-year. It's low single-digits. So the volume that we're seeing is driving the growth in GMV. If you look at Q4, again back to the two-year numbers, I think it's always important to look at the two-year numbers when we are annualizing against last year because of the pandemic. And we -- with the numbers that we've guided to the 18% to 22% on a one-year basis, is something like 76% to 82% two-year growth, and that's phenomenally fast for the key quarter. And I'm very happy with that position.

As I said earlier on, we've seen a good pickup of the Fall-Winter full-price as we started the season, particularly actually coming out of the North America market over the first five or six weeks of Q4. On top of that, Singles Day in China has been our biggest ever, obviously helped by the store on Tmall's Luxury Pavilion, but also the China app doing its biggest ever performance for Singles Day as well. And then next week, obviously, a key trading week for us, it will be the biggest week ever for Farfetch, of course, going into Black Friday. So it's a mix as you go into Q4 of some promotional activity around these key events, a very strong underlying full-price offering, which as I said has picked up out of that slow start in September. And then we will see how the holiday season trades over December.

So it is volume growth that we're seeing, annualizing very strong growth from last year, obviously to deliver a two-year growth, which would be ahead of our longer-term target of that 30% compound annual growth rate. So very pleased with what we are doing for Q4.

Alice Ryder -- Farfetch Limited

The next set of questions comes from Louise Singlehurst of Goldman Sachs. The first question is about GMV growth and the 30% run rate that we've discussed in the past. What are the building blocks and our confidence to get there, especially in the context of the slower pace that we're expecting for Q4?

Elliot Jordan -- Chief Financial Officer

Yeah. Louise, I think it's always important to look ahead to next year as a sort of a more, I suppose, normalized year post the pandemic. And we've entered, got through and are exiting the pandemic ahead of the compound annual growth rate of 30%. And as we move into next year, we certainly see that growth in the marketplace, where we expect to be on FPS, the fantastic customer base that we have already at 3.6 million active consumers.

As Stephanie said earlier on, the value per consumer since 2019 is at higher levels through better retention rates. We've been able to model out where we believe the consumer dynamics will play out for next year and what we can achieve in terms of having obviously the sellers on the marketplace and the strong pipeline of activity that's coming through on the FPS side of the business.

So I think, I wouldn't take the Q4 20% midpoint of the guidance as you are modeling for next year, because actually when you go to on a two-year basis, it's ahead of the 30%. So we're very confident that we can deliver 30% for next year as we move forward.

Alice Ryder -- Farfetch Limited

And then a follow-up question from Louise for you, Elliot. In terms of the full-year 2021 guidance of $5 million adjusted EBITDA, given the level it's a bit modest, and we're facing higher inflationary pressures. Is there a risk of aiming for a positive contribution that we may under-invest elsewhere?

Elliot Jordan -- Chief Financial Officer

Look, I think we've always focused on the long term for this business, and investing for the opportunity that lies ahead of us, not this year but beyond, is a primary goal and a key priority for us. The adjusted guidance now for the full-year profitability is down to the unprecedented cost pressure that we've seen. And it's not only continued longer than we had thought throughout the year, but in the last quarter, really stepped up and put pressure on us. And we now focus on profitability at that sort of $5 million level as opposed to the previous 1% to 2% of adjusted revenue.

But that's the right balance for us. We see based on the trajectory as we head into Q4, we believe we're going to trade over the next handful of weeks. The fact that order contribution is back above 30% already quarter to date and estimated to be between 30% to 35% for the year. And of course, the strong operating cost leverage that the teams are delivering by achieving that GMV growth year-on-year with little incremental operating costs. Of course, we continue to invest but little incremental operating cost, particularly as you saw within the technology line. We can achieve the full-year profitability of $5 million and continue to invest. So we've got the balance just right.

Alice Ryder -- Farfetch Limited

Thanks, Elliot. I think we have time for one last question. And that'll come from Geoffroy De Mendez of Bank of America. Jose, can you talk generally about our existing FPS contracts, how they work on the P&L? And then any indication of take-rate and EBITDA margin from FPS?

Jose Neves -- Founder, Chairman and Chief Executive Officer

So thank you, Geoffroy. So we don't break out FPS. Maybe one day we will do, but it's not currently the practice, and it's obviously commercially sensitive as well in terms of take rates. I can share with you that it is profitable at an EBITDA level, and actually on the full P&L level. So it is a profitable business unit already.

And I think there's enormous potential here. As I outlined, this is getting brands and retailers and e-tailers very, very, very excited. Unique capabilities such as connected retail, which we have developed and then implemented with Chanel and Browns and Thom Browne. Also, you see companies that do only one traction or one of the features of FPS, say, global payments and logistics. So if you run FPS like when we launched -- my apologies, when we launched Harrods on FPS, it was very timely because due to COVID closures, they were able to continue to sell into the very large number of customers in the Middle East, in Russia, in China, that's because it comes out of the box with FPS.

Now there are companies out there just doing that, just doing global payments and logistics that are $10 billion-plus market cap companies. Now we are going to modularize that offer next year. We think that modularization is going to speed up the sales cycles. Obviously, it's quicker to do -- to sell a model than to sell a full solution end-to-end. Another win is Marketplace as a service. You saw Gucci becoming a customer of that FPS model, if you want, a solution. Again, there, you'll see other companies that only do marketplace as a service with multibillion market cap valuation.

So the potential is tremendous. FPS does all of these things out of the box, and we'll do them in a modularized way. And we have very exciting pipeline for that business. So I think it will have a tremendous impact in the medium to long term. But of course, we will update you. We will keep you at pace as these contracts are signed and completed, and then as it flows through our P&L. So very, very excited about Luxury New Retail and FPS.

And I think it's an area of our business that really hasn't been done as much, if I'm totally honest. And I think it will get further visibility as we progress on that mission, and we're on track to make it a very exciting part of the vision. A vision that I stated since IPO, this is not new. Since IPO I said, we're -- the vision of this company is to be the global platform for luxury, which goes beyond the marketplace. The marketplace is a tremendous opportunity. We will continue to be expanding the marketplace and capturing market share. But we also have a platform and we can open the capabilities that we develop for the marketplace for other businesses.

And it's a synergy. You have Harrods, for example, started with FPS, the same owners that own Harrods own Clantana [Phonetic]. Clantana [Phonetic] then joined as a Marketplace customer. And now we're working on start of the future, what we call connected retail for Clantana [Phonetic] indoor, right? So this is an example of -- these are not just disparate business units. This is part of a holistic vision and the flywheel that really provides value and provides a long runway to develop its relationships with the luxury industry.

Alice Ryder -- Farfetch Limited

Well, thank you. I think that wraps up our call for this quarter. Thanks, everyone, for dialing in tonight. And we look forward to speaking to you in early next year for our year-end call.

Duration: 61 minutes

Call participants:

Alice Ryder -- Farfetch Limited

Jose Neves -- Founder, Chairman and Chief Executive Officer

Stephanie Phair -- Chief Customer Officer

Elliot Jordan -- Chief Financial Officer

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