After some poor pricings
from a few China-based IPOs, the tide appears to be turning for the IPO market.
Overall, it's been an impressive showing over the past couple of days,
highlighted yesterday by Eventbrite's (EB) strong pricing and sky-rocket move
higher by +58%. Today, there is another IPO that is catching investors'
attention: luxury fashion technology company Farfetch (FTCH 29.09, +9.09, +45.39%).
Specifically, its up-sized 44.2 mln share deal (original expectation 37.5 mln) priced at $20, above the upwardly revised price range of $17-$19 (original expectation $15-$17). In all, the deal raised $884 mln in total gross proceeds, about 47% more than anticipated. The company intends to use the proceeds from the offering for working capital, to fund growth and other general corporate purposes, including possible acquisitions.
The deal was led by Goldman Sachs, JP Morgan, and Allen & Company. Shares are slated to open for trading later this morning on the NYSE.
FTCH is the owner and operator of a technology platform for the global luxury fashion industry. Its marketplace seamlessly connects brands, retailers, and consumers who are shopping for luxury fashion products. As of June 30, 2018, it had 989 luxury sellers on its marketplace, including many of the most popular and prestigious names in fashion. Its offers merchandise across multiple categories, including Womenswear, Menswear, Kidswear, Vintage, Fine Watches and Fine Jewelry.
Its platform consists of three main components:
- Applications: The Farfetch Marketplace is the primary and largest application on the platform, connecting consumers from 190 countries and luxury sellers from 45 countries. Other applications include Farfetch Black & White Solutions and Farfetch Store of the Future. Farfetch Black & White Solutions provides retailers with services ranging from individual off-the-shelf elements to a full-service, branded ecommerce solution. Farfetch Store of the Future, a suite of connected in-store technologies providing a personalized physical shopping experience.
- Services: FTCH offers free and fast content creation, luxury product presentation, demand generation through its marketing services, secure multi-currency payment processing, as well as supply chain management.
- Data: The company has developed data sets and algorithms that drive operational efficiencies and automate decision marking through machine learning, helping to guide merchandizing, targeting, curation, and feedback.
FTCH generates income from transactions between sellers and consumers connected to its platform. Transactions generate GMV, which it collects and remits to sellers after deducting its income.
Taking a look at the financials, for the six months ended June 30, 2018, revenue jumped by 55% year/year to $267.5 mln. The increase in revenue was a function of growth in gross merchandise value (GMV) of 60.0%. Growth in GMV was primarily driven by the number of orders increasing by 53% to approximately 1.3 mln. This, in turn, was driven by growth in active consumers by 40.4% from 796,297 to 1,118,047, growth in frequency of orders from active consumers, and growth in average order value by 5.1% to $622.1 per order made.
Gross margin, however, declined from 54.7% to 51.2%, due to a decrease in blended commissions on sales generated through the marketplace, and changes to third party and first party sales mix, which attract different margins.
Also, technology expense, a component of SG&A expense, surged by 179% year/year to $31.0 mln, which is related to increases in technology staff headcount. In all, SG&A expenses were up 66%, outpacing revenue growth, to $83.0 mln.
As a result of the dip in gross margin and sharp increase in expenses, FTCH's operating loss widened considerably to ($71.9) mln from ($31.4) mln in the year ago period. Also, Adjusted EBITDA took a turn for the worse, coming in at ($49.1) mln compared to ($14.0) mln.