Q2 2020 Farfetch Ltd Earnings Call
[music].
Good afternoon, my name is wrong and I'll be your conference operator today.
At this time I would like to welcome everyone to the Farfetched second quarter 2020 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
If you like to ask a question. During this time simply press Star then the number one on your telephone keypad, if you'd like to withdraw your question first the pounder hash key. Thank you I'd now like to turn the call over to Alice Rider VP of Investor Relations Ms. writer you May begin your conference.
Hello, and welcome to far Fetches second quarter 2020 conference call joining me today to discuss our results our Geo say Nevis, our founder Chairman and Chief Executive Officer, and Elliott, 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 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 factor section of our form 20-F filed with the FTC on March 11, 2020 and in exhibit 99.22, our form 6K filed with the FCC on April 27 2020.
In addition, we will refer to certain financial measures not reported in accordance with <unk> on this call.
You can find reconciliations of these non IFRS financial measures to the IRS financial measures in our earnings press release, and the slide presentation, both of which are available on our web site at farfetched investors dotcom.
And now I'd like to turn the call over to just say.
Thank you welcome and thank you all for joining us today.
I'm very pleased to be speaking to you about our gold floating through 2020.
Group TMZ grew halted the sense to settle ahead of them 21 million Boes, driven by VCSEL platform GM de acceleration to a record $651 million.
Up 34%.
So it depends on a constant currency basis.
As well as the addition of brand platform GMT following the acquisition of new Gods in June Sweet Dreams, United team.
Last quarter I outlined seats.
Key differentiating advantages, which position for us hedged to emerge from the coal views 19 situation even stronger.
And our outstanding Q2 results clearly demonstrates that they're playing out.
As the industry undergoes what I believe is a major acceleration of the sustained online. The adoption we have been anticipating seem to be installed in class hedge. So do you need to go.
First our business model has proven to be truly resilient.
We have continues to be able to serve our brands.
Retailers and consumers since the onset of the been damage.
No material disruption.
While also prioritizing the health and wellbeing of our employees partners and customers.
Second our market, leading digital platform has enabled us to leverage our reach across our 100 remains America.
And capitalize on all with stronger show a wise.
Investing lesions, where our programmatic marketing algorithms detected the men by consumers who were shooting the shopping online.
As a result, we believe were a record level of transactions during the quarter.
As we acquired our largest ever cohort of over half a million new customers.
And more than doubled year over year App installs.
Do you see if people desirable as our mobile app customers had historically NPV being higher LTV.
Additionally, we access now up to 2 million members, we now have 80% of our active consumers enrolled in our loyalty program.
You present significant opportunity for us to fuel our future growth by driving engagement and sustain recurrent shape to loyalty initiatives for our extended consumer base.
Third.
Our expertise on localized operations in China, and now the key markets allow us to offer luxury consumers the breadth of both worlds by enabling them to shop, a global supply of luxury fashion from 3500 off the best Brian.
Right and that as web sites.
He their native language supporting Devry for payment methods.
And for our private clients.
Local stylist, who is a june to their local type size.
As a result, we have seen our markets across EMEA, including major European countries, and the middle East as well as markets in APEC and the Americas, such as mainland, China, and Mexico outpace our overall marketplace growth as tourism shopping.
Then.
Being repatriating in light of continuing illustrations and concerns around international travel.
Additionally, in your Wes which grew slower than the overall market. Both in Q2, we saw encouraging signs of demand picking up as growth began to accelerate at the end of the quarter.
For all of our unique concession model is helping even more brands boutiques and department stores navigate this unprecedented situation.
In fact in Q2 hour talked Wendy direct brand or tablets together, so a doubling of the direct to consumer our E concession sales on the farfetch marketplace as compared to Q2 29 team.
And we continue to maintain 100% retention of our top 100 brands and our top 100 retailers.
With a significant shift of consumer demand to online since the onset of Coke is 19.
Planes are we there was focused on digital channels has intensified in Q2.
And we have expanded our partnerships to nearly 1335 to six hours now, but if you're trading on the passage marketplace, including more than 500 brands and over 750 retailers.
We're also looking forward to bringing selections from renowned French department spot container.
Among others signed recently onto the passage marketplace.
In addition to seeing strong interest from new partners existing towers have lean dean to the marketplace proposition, resulting in our highest ever SKU count and upsell the inventory in June.
And Marcellus offering each skew, which further increases our geo diversity.
He advantage in our ability to continue operating throughout koby 19 related closures.
And I did benefit from the stronger relationships. We have developed with range has been a ramping up of opportunities for us to partner on if you give collapse, which offer away to showcase their brands and also drives further differentiation of the package marketplace to consumers.
Recently, our consumers have exclusive access to excitement collections from Gucci first circle the question.
Burberry summer monogram capsule and Myleaf Homeware collection.
We also established an ongoing exclusive relationship to be the sole multi brand online channel four reactors label Sandy.
Which marks our seeks LVMH direct brand relationships across the passage group.
And we are continuing to explore opportunities to strategically partner with Mega brands seeking to increase their direct to consumer distribution via a multi brand he concessions.
As Steve differentiating advantage rising Fastmatch platform solution all Sps.
The enterprise solution side of our business.
We're pleased to see that Sps is firing on all cylinders across both our longest standing as well as our new partners as we enable their continued operations even as it stands remain closed.
GMP for Fts clients with a one year or longer tenure grew faster than the plan such marketplace.
Reflecting a broad based shift to online across the industry, including by brand loyal consumers.
Additionally, our launch of Harrods Replatformed E Commerce business in February also drove significant GMB growth for Sps and contributed to the acceleration of digital platforms here in Q2, our first full quarter, reflecting these partnerships.
We are pleased to have delivered stronger than expected growth.
The iconic department store and too heavy enable them to continue curbing the global consumer base, while the Knightsbridge location was closed for most of Q2.
Finally, our out Mandeep retail initiatives, which we have been developing two hour excludes these technology partnership which now over the past few years are expected to be even more critical for brick and mortar luxury.
As leading brands seeks to optimize sales per square foot.
Lower traffic both for these 19 environment.
We look forward to unveiling the next generation of our solutions to help physical retail is enable an invaluable and personalized new normal shopping experience.
We plan to launch our revolutionary star of the future experience in our own dropped slightly boutique towards the end of this year.
Which will be an exciting ongoing demonstration of the capabilities, we have been developing.
Turning now to new Vas, which just celebrated its one year anniversary as part of the passage family.
Since last August the fire search engine gas teams have been working closely to advance the three key tenets of our collective brand platform vision and strategy.
And we've been thrilled with the execution to date.
First towards our initiative to increase the mix of higher margin direct to consumer revenue across new guards brand portfolio, we have fully integrated the brands into our fulfillment by far fetched facility to enable failed fired farfetch marketplace.
And Fps has begun replatforming than nine drain dotcom site to enable their mono brand channels.
Additionally, we have taken proactive actions to reduce or eliminate product allocations to nonstrategic online wholesale partners.
In our efforts to prioritize long term brand value overshot them revenues.
These efforts have significantly increased the mix of online direct to consumer revenue from 2% at the time of the acquisition to 19% in Q2.
And we see opportunity to continue to increase if mix by further leveraging new backs unique merchandising approach in combination with the digital capabilities of the fact that platform.
We have also seen new gas brands bring cultural relevance to the package brand and the lever a strong halo effect on the other 3500 brands available on the marketplace.
In Q2, the number of baskets with both new that item and an item from another great doubled year over year.
And when the most recent off white edge thousand collapse sale drop last month it sold out within the first our.
And generated 800 million cheeks during that time with no marketing spend.
Finally, we have made progress in continuing to expand existing brands and building new brands of the future to drive long term growth.
We're pleased to see Palm Angel has now moved into the top 20 brands on the package marketplace based on CMV.
And ambush a key one addition to the brand portfolio has already getting recognition as a next generation brand and cultural pioneer by leased and high Society.
I'd also like to take a moment to address the important development behind the global contraction to fight for ratio equality.
I believe.
Slides matter.
And that faster, which has the responsibility to help eradicate Hispanic races in society starting from within.
Over the course of the past month, we have had opened conversations with our black employee network and across our business.
As what we can clear is that we have a lot to learn a lot to do to support on champion our colleagues.
Perfect is the company attraction.
Sentiment.
Beyond donating 22 important clauses on discount.
Some examples of the actions we have already taken includes.
Implementing training and career development program.
Establishing a global diversity and inclusion team to drive our efforts across the business.
Amplifying the black fashion community across our platform.
And becoming an inaugural member of the Black infection Council.
And organization focused on advancing black representation at every level, including the two three of the fashion and beauty industry.
We remain committed to driving change and results at all levels of our business.
This concludes our board of directors, where we have also improves representation.
Additionally, we have created a new he achieved committee of the bar.
Which will be dedicated to overseeing our efforts around sustainability.
Social responsibility and Govs as well as our diversity and inclusion initiatives.
We are just at the beginning but we are committed to continuing to listen and learn and to work towards creating positive change for the future.
I would also like to take a moment throughout wines above evolution, we've announced today.
These changes reflect the planning the dialogue and Denominating corporate governance committee have undertaken in anticipation of the natural evolution, we expected following our IPO.
With a view of ensuring continued strong governance and support of farfetched to our next chapter of growth.
I am delighted that Stephanie hardened Diane early in.
Victor Luis.
And Jillian times has agreed to shine the passage board of directors.
As each bring valuable perspective, and complementary skill set across key areas, including technology fashion and heinen.
I am excited to work with the new directors and the entire passage bar as we continue to solidify our position as the global platform for the luxury industry and maximize shareholder value.
At the same time I'd like to saying to the patent directors further many contributions to the company over the past several years.
Each has played a significant role in past actually success in chapter one and I am grateful for their leadership.
Finally, I'd like to say especial, Thank you to micro chair Natalie Masonite.
Not only brought incredible wisdom and keen insights to the board over the past for use on the health.
And played an invaluable role in process is growth and transformation.
Particularly in relation to our focus on putting the customer at the heart of everything we do.
Natalie and the other impacting directive leave us with our very warmest wishes and thanks.
And now I'd like to turn the call over 12, yet for the financial review.
Thank you George and Hello, everyone as George has been describing the passage platform has excelled over the last quarter and I'm pleased to share the financial results of the group, which reflected very strong performance and position moving forward.
Across the group GMB grew 48% year on year to $721 million.
Adjusted revenue increased 17% year on year to $390 million.
Adjusted EBITDA now measure of underlying profitability improved $12 million or 33 things compared to Q2 29 thing to minus $25 million.
Taking our EBITDA margin to minus 8%.
And our cash position closed the quarter at just over $800 million boosted by the $390 million of mid proceeds from the issue of convertible Dick we executed in April, but also reflecting a significantly reduced underlying cash burn of just.
$12 million across the quarter.
It's also worth highlighting that our combined tick general and admin costs were held flat between Q1 in Q2 of 2020 wants the group added $110 million of GMP between the two courses.
These results shortly we are making excellent progress and driving growth on the platform.
Expanding unit economics, and delivering operating cost leverage.
Our goal of achieving adjusted EBITDA profitability across 2021 is another step closer.
I'm going to choose from specific insights about the Q2 performance from our three business segments.
First our digital platform, which enables global third party transactions across multi brand marketplaces.
Branded E Commerce solutions for our passage platform solutions offering.
And the founder first party product from the buying things at Brown and first party original products created for our new gods.
This platform delivered GMB of $651 million, representing 34% year on year growth based on reported results and 39% versus last year on a constant currency basis.
This growth was underpinned by the highest number of new customers gains in a single quarter on the marketplace.
With over half a million people shopping with profits for the very first time.
Destroy the share of GMB from new customers to levels, we have not seen since 27 thing and was achieved despite the cost of acquiring these customers on a per customer basis being down 30% year on year.
The digital platform GMB also included a full quarter of trade from our client Harrods as Rommel strong growth in our direct to consumer proposition for our own brands developed by new guards across the marketplace and by branded website powered by our.
To do platform.
Finally, we saw strong support for our cash connect the poor boutiques campaign at the start of the quarter and growth of our food price offering across my engineering.
Our grew 86% of GMB is from third party sellers on the platform at a take rate of 29.9 pissing.
Consistent with Q1, and 14% of GMB is from sales of product on a first party basis, which continues to grow stronger than the overall platform driven by growth of the first part of your original business coming from the new guards brands.
As a result digital platform services revenue grew slightly ahead of Gmbh, 35% year on year to $238 million.
Looking specifically at the fastest marketplace.
As I said before we head over half a million new customers within the quarter without research telling us that the vast majority of these new customers shopping more online as a response to the pandemic.
Overall traffic grew more than 60% year on year and asked them to more than doubled year on year.
Our average order value decreased 18% year on year to $493 due to the higher mix of first time orders, which seem to have lower average order value.
The curve is 19 related mix effect towards lower price point categories and currency headwinds.
Now from price mix increased year on year, despite the markdown levels, we've seen externally across the industry and we significantly reduced our level of promotional overlays to the trading calendar with fewer discounts Vince.
And older contribution of six.
The 8% year on year and little contribution margin.
Stepping up to 35% compared to 28 cents, a year ago and 32% in Q1 of 23 entity.
They were three key drivers of the high margin.
First the growing mix of higher amount.
Of profit platform from.
Vision, which comes with a lower cost of revenues and higher order contribution as the result.
Second reduced funding of customer promotions within our marketplace.
Now spins on promotion as a percentage of Dnbi was back at Q2 2018 levels review.
Two things the top and spending we saw this time last year.
And finally, improving first party memory 19, as we delivered a bitter food price mix versus last year as well as the growth of third party original products, which have higher product margins.
These factors were partially offset by slightly higher cost of shipping as a percentage average order values across the marketplace.
In terms of demand generation this increase slightly year on year, 7.3% of platform GMB, primarily due to the skew towards first time orders across the marketplace.
Because new customers have lower conversion right and a higher price mix versus repeat customers.
This means that orders run higher than the cost for repeat orders.
All in all we are not very good place with lower absolute per customer acquisition, Spain.
And Paul Puryear from the new customer Carnival.
Okay.
Hi impact on type from gross margin, we did not.
With this means recruitment passthrough fulfillment costs the.
Drew platform services cost of revenue.
Okay.
In Q2 hotels in fulfillment revenue growth of.
99% year on year growth.
Meaning risk.
This is last year.
Which delivers the positive impact to gross margins.
Turning now thinking out connectors wholesale.
Yes, which generated of GMP.
While this represents a like for like decline in wholesale revenue of.
When we combine this with the direct to consumer trade on the digital platform.
The new gods business declined by just 6% over Oh.
This is an appearance misses were down 40% to 50%.
The synergies that come from owning the studio with brands that developed collections and can reach globally.
Who custom device through the digital platform has delivered a strong phone direct to consumer.
Brand platform itself deliver $28 million of gross profit.
For a 42% growth finally now in two segments. So we're a slight year on year decline.
Due to cope with 19 really.
Feted store closures during the quarter.
Where we have delivered strong operating leverage and efficiencies.
Year on year.
And DNA totaled 45% of adjusted revenue compared to 49% in Q2 29 thing.
Continued focus on scaling up.
Business.
As well as the theory underline any income into Spain, not deemed the same true.
Q2, depreciation and amortization was $52 million.
And our share based payment experience was $62 million, an increase of $35 million from Q1.
We would grant and our hot share price being reflected in the permit Jim full employment related.
This increase in share based payments means our operating loss move from $180 million in Q1, two between $8 million to $140 million in Q2.
Turning now to our outlook for the third quarter.
It is clear.
Due to which has continued into the first six weeks of Q3.
We have entered the quarter were 3.5 million active countrymen.
When you customer growth remained strong.
Average order value has already recovered from the lives of year on year decline. We saw in Q2 and is now likely to be down mid single digits in Q3.
And you season product isn't hop Denoms.
We therefore expect to see Q3 year on year digital platform GMB growth accelerate from that that was achieved in Q2 with growth in Q3 between 40% to 45% as compared to <unk>.
We also expect now digital platform older contribution margin to remain between 32 to 35 to things in Q3.
Within the brand platform with strong demand for new Guards brand.
Shipments of full Windsor product ramping back up and we now expect retrieve GMB of $90 million to $95 million across Q3.
Finally, we expect an adjusted EBITDA loss of $20 million to $25 million as we continue to progress being positive adjusted EBITDA.
For the full year Threec 21.
Hi, Good morning thing could still impact on these results and as always we keep a watchful eye on the competitive position across the industry.
With that being said that I mean, some of the business reflects the amazing work from our teams supporting the global Farfetched community, which we will be pleased to continue to serve without platform proposition in the coming quarters.
I'll now turn the call back to Joe's I.
Thanks Elliot.
The tax few months have prompted paradigm shift and many aspects of our lives.
Including the way we shop.
He seems particularly to intellectually.
Which is a very resilient industry.
But one that has been underpenetrated relative to overall E commerce.
In past due to its heavy reliance on tourism shopping.
Well actually shop as demand for luxury fashion is expected to remain.
Well actually consumers around the Globe Act clearly shifting online.
Response to travel restrictions as well as safety concerns in general and fast hedge is meeting that continues the land. We then nine rival the range of luxury fashion and a unique end to end global shopping experience.
As a result, I believe we are undergoing.
And Asia acceleration of the sustaining online adoption, we envisioned as a secular trend shaping the chain.
We believe that visibility on when and to walk expand international travel and co traffic to luxury retailers who repeal.
Brands and retailers.
As fast tracking their digital transformations to offset the unprecedented decline in that traditional retail and wholesale businesses.
And five patches global platform, which has been Taylor deal tell actually is uniquely positioned.
To capture these opportunity.
To enable and connect.
The curators creators and consumers of the luxury industry.
Thank you and we would now be delighted to take your questions.
As a reminder to ask a question even in the press star one in your telephone to withdraw your question press the pound key due to time constraints. Please limit yourself to one question only and your first question comes in light of Oliver Chen from Cowen. Your line is open.
Hi, Thank you regarding the ASV recovering at to sit down mid single, what's been driving that improvement and how do you see a or b manifesting as we go forward and as you introduced.
New clients to the platform.
And.
Things happen there.
Post crisis.
Thank you.
Failover good speaking to you or so years here on the IB Christian.
So we see a couple of things coming through there. The food is actually the mix of state the southern to reverse a little bit Thursday.
You season collection, that's on the platform now from the Brandy concessions and from boutiques as I said earlier is in very very strong demand.
And clearly as we head into the fall Winter campaign comes at the higher the and it seems as though customers on now buying back into similar sorts of categories as though during last year as opposed to but that's kind of couple of quarters that have been a dialing back towards.
In most cases clothing. So that's a positive early indication. We're also seeing the the new customers continue to buy strong towards the top end of the Ivy, which is helping it that Bruce back up as well so very.
Very good recovery on from the product mix and the customer mix there.
To a Christian about as we move forward.
I think everybody will still continue to be down year on year over the next few quarters as the new customers.
Back on expanding their they.
[noise] new customers tend to boys me baskets so.
So I think it used to be in the negative position.
But not to the <unk>.
Mid single digits as we move forward now it is a is what we're saying.
[noise] youre not yet however.
Sorry, I was going to answer the second part of the pressure that's okay.
Please go ahead.
Thank you Hi, Oliver.
Yeah. So I'm the start of the future technology, and I, I really believe and the online or offline world.
Ultimately going to converge.
We're seeing pioneers in that region, probably is the goal for the luxury industry in particular.
In a round.
Couple of years ago, we either nexpose impact the shapely, Chanel cherish shareholder and innovation partner.
And we launched when you're going to add number when flagships borrowing as you can Boeing buried the adoption.
Has been absolutely exceptional both from consumers using a dish analogy Campbell at and shop spark stop using our shops or app with all the connected and experiences and connected products and devices that were having star.
That is extremely exciting and we.
The onset of the Cobiz 19 Prize is we've we gather our teams.
And we and we work very very.
In a very very intense way in terms of adapting the product and evolving the product to the Colgate 19 World and.
I'm very excited and too.
Looking forward to the launch of the second generation I'll describe that.
We will and Bailey and we relocate brown and in Mayfaire. When your location. These also marks the 50 people get anniversary of rounds of the company. So delighted to take this iconic boutique in bill or the plan because sanction.
And this will be a great lab and a great ongoing demonstration for new partners Chanel.
Let's continue that he will towards the end of the year.
As we accelerate comps.
Patiently luxury brands, but also be bad nonstop using these type of solutions and I think we have an absolutely pioneering solution that meets.
Ahead of the kind of why we seem to say so I'm very excited on that front as well.
Thank you.
And your next question comes from a line of movies Singlehurst from Goldman Sachs. Your line is open.
Hi, good evening things I have yet thank you say much the color and say how I wonder if you can just took us a little bit about the conditional.
And that's obviously they seem to take it on expansion Nicholas knowledge, but who say where everybody is every day and 18 months Kensington its competitive pressure from the light says well supported not too.
Another another platform can you talk a little bit about competitive environment, what you're saying I see you're getting much better Donald direct with the Crown Onboarding more department stores.
In terms of that competitive landscape and vital kinda differentiating of silicon taking lifestyle.
Down late they tend to lose a number that penetrated exits to pay that'd be helpful. Thank you.
Yes, Thanks, Louise great talking to you.
I think you know one year ago, and we were very clear Andrew.
In what was going to be our strategy in terms of.
I'm staying capacities and.
And you know routine and keeping an eye on the completion and also on the on the promotional trend.
And that strategy.
Has been carried out in the last four quarters.
And and very very happy with the results we.
We have had.
Lets promotions.
And then there might be able to go and actually we both the level of promotions from or two years ago. So we're back to Plenti 18 levels.
And if he is in spite of as you would expect.
That's fair widespread promotional activity and in the face of movies 19 buildup of inventory and so I think weird focusing.
Cultural relevance and the end GGB and acquisition is also playing out in driving organic traffic.
We are elevating the quality of our relationships with brand and we mentioned the Gucci air cooling days under under Burberry, when and their LDL matrix M. P.
I think examples but there are many others like the nation.
I think the that he can fashion, which has a unique feature of the capex platform.
And as you would expect luxury brands, primarily sell only food guys I'm on the package platform.
I'm good top 20 concessions have doubled in G.M.D. year on year.
So you as you can see lots of strain on the full price type of our dealer, which gold price as the mix and has actually accelerated this quarter and so I'm, we're delivering on Watson said work when we look strategy one year ago, and we're doing that I'm very very strong way.
And Ah you can expect it to continue to be our stance.
I would.
Your next question comes from a line of Marvin phone from BTI G. Your line is open.
Good afternoon. Thank you very much for taking my questions congratulations on the.
Recorder.
So I would just ask.
Great numbers on the new customer acquisition.
It also see perhaps that you're doing a better job of retaining your existing customers, but perhaps you could comment on on the retention retention trends you're seeing on your existing customer base do you see the signs of stress.
Because it actually go like retention improved.
Okay.
Hi, Marvin.
[music].
Oh, you're going to Jersey, what kind of it [laughter].
Oh, it's good.
Directionally, they're the retention of customers actually.
Being strong.
The sort of statistics, we follow around repeat purchase on a one month three month basis.
Indicates that a interim leaving more recent cobalt customers staying with us.
Yeah, It really feels like there's been a absolutely significant behavioral shift and customers mine sits around shopping online and the frequency of them online shopping the seems to be quite sticky.
Well, we are seeing what we had been seen across Q on Q2 as we previously talked about is that was with a different product mix versus previous customer cohorts, which means that the share of the new versus existing customers sort of dropped back.
Same time is the new customer mixes does increase in terms of JV, but the good news is the customers the severe listing shopping and that season, that's up to a great platform for future growth.
The team in the demand generation aspect of the marketplace has done a fantastic job focusing the customers zone at download you see near download number up over hundred seen year on year.
The repeat purchase activity from the demand generation thing through social media and other re targeting has proven to be I'm very positive in terms of that retention. It would just be talking about and importantly, the cost to repeat order in terms of media spend is down year on year, the customer acquisition cost.
30% year on year the cost of this is down year on year in terms of the data, we're using two droid a bit of targeting.
But we're keeping now a foot on the gas in terms of demand generation screens to 7.3% of GMB as a focus on that new customer growth and retention. So you really see ourselves up to to benefit.
From this growth of online shoppers.
And your next question comes in light of Eric Sheridan from Yes. Your line is open.
Thanks, Good luck to taking the question hope all is well in shape for everyone on the far fetched team I'm going back to the amounts you made a couple of quarters ago. When the implementation around hemorrhage about how should we think about that as a harbinger potentially more deals like that as she takes over the medium to long term and how should we think about it should contribute.
The growth going forward model and 20 Twond.
Maybe even beyond that so much.
Hi, Eric and.
We're very excited about Sps, our enterprise side of the business and.
We really think I'm going to school, rather was created D train the air global platform for luxury.
FDF narrates older marketplace capabilities, and so I think parents as it went down because rate case studies from day, one out of the box or they were able to service that Chinese customer.
Middle Eastern customer there Russian customers. These are geographies that and as you know I've area button for that iconic department store.
And and there's a number of either very powerful capabilities such as for example, the ability for the past ourselves. This is something that we're looking forward to do we'd have to launch new concessions, we mean there their environment.
Along at a very exciting global omni channel capabilities. So we.
We really see Andy's enterprise solutions, delivering strong results and the existing.
Tenants on this platform is around 20 luxury brands. So Europe, then I LVMH as you know.
They are growing very fast faster than the patch marketplace. So a number of both 74%.
Which we think it's or demonstrates the demonstration of the strength of the obvious enterprise offering and yes, absolutely new enterprise customer we are with open conversation failure as you would expect Weve added the patent expires at the Grand.
Which and which I think will benefit greatly from these platform part of our business. So we are we at least clearly demonstrates that we are an E commerce enabler, where we're a platform that enables not just pass etch as as a marketplace.
But also a department stores and Grand I'm old web sites and that.
And I think that is and very very powerful LTPS a solution that is absolutely Taylor.
For luxury and the solution that is global or out of the box.
Which I can't give them isn't unique is a unique proposition ondeck shrunk.
So we think you know watch this space I think we.
We are definitely can bring to continue to have a good news coming from that trunk.
Thank you.
Your next question comes from a lighter Jason Helfstein from Oppenheimer. Your line is open.
Thanks to question. So can you clearly there was a benefit I think broadly.
In marketing and into Q as you were able to benefit from that expensive media cost lower you can be Kara.
And so maybe talk about how much that benefited or contribution margin and they kind of like you were seeing a third quarter as far as media because I do think pricing has come back up and then packaway. He really seem right. Now you have really helped brands get through calls and we're not done but and make the best.
They just maybe talk about what do you think that benefit to you fumbles relationship and it isn't it with the brand coming out of Colgate. Thank you.
Hey, Jason I'll take the first question and the cost this is.
You know you're absolutely right we are benefiting from.
No cost I think some of that is external in terms of competitors and how aggressive the being on search terms. This is.
Historically Liberals I've, obviously sit back so we've been able to benefit there, but it also we've done some consistent work internally.
Around.
Rationalizing and reviewing how we spins and where we put our media dollars and the better ROI innovate across to suit that comes from some of that activity, particularly around re targeting a social media and we're sorry, the search engine marketing spend that we.
We've been investing in so that's allowed us to really reduces was it before the cost or.
Repeat order and mechanic.
Thats coming from the Dicer advantage that we have is as a marketplace.
With substantially more visitors a year on year.
Things get me high number of customers interacting with us.
And with the state top in terms of that product range, we've been really able to mine the data to decide we will be indexed intermediate screening and we just don't see the return.
But what I'd say, she moved through and contribution as we reinvested that a new customer acquisition and clearly with these customers looking to shift online we feel those customers down and we leaned into that with additional spend so due to contributions benefit a year on year isn't actually down to.
Non generation spin it was broadly a 20% about a platform services revenue this year and 20% last year. We the benefit has come from in terms of viewer contribution step up from 28 to seemed last year to 35% this year.
Just on the promotional spend matures I was just touching on before we is there's a seed.
Spending as a percentage of GMB at 2018 level. So we reversed the state partway through last year actually our cash primary speed.
Is down 26% year on year, So we're spending less on prime or than this time last year, even with the step up and GMB growth and that's because we had no experience using a fair amount down. So we had no experience a full price we hit houses many free shipping days.
And as a result, the GMB with a promotion actually a half year on year through the food price mix and really pulling back on promotions to support the industry's is coming through as planned and what that means is we'd be no to step up the gross margin both of the lumpy business, but also the three p. business.
A little bit promotional spend from us has being pulled back and that's why are you, saying the gross margins of the platform a move from 48% last year to 55% and then within that you can see we've included for the first time, a split that between one P.M. threepi.
Lumpy business has moved from some team to same gross margins to 30% gross margins a combination of beta food price mix. I mean is promotions on external brands and of course, the stronger product margins that come through from.
The first party original business out of and you guys group, so really sort of who the plans to expand the gross margin as we talked about for the higher higher I'm sure study original improved margins on lumpy, reducing reliance on promotions.
And of course saving on demand generation, which we have of course reinvested. This time announced reinvest all helping drug due to contribution up and also that's given us the confidence to be at 30 to 35 single contribution in Q3, I won't go into demand generation spin and what we've seen in terms of media spend for Q3 just yet.
We still got six weeks of course is going to for your things can change. So I'll update you on that when we make space.
Yeah, Jason on.
Second part of the question regarding brand and.
Heldenbrand navigate coldeze and.
Thank you know.
We said I think what what we're witnessing is a real.
Paradigm shift.
And I think its paradigm shift is happening.
From the demand side, and it's happening from the supply side as well.
I think clearly luxury consumers are moving to online increasingly.
And and that's also what these very quickly to the Leslie industry a huge repatriation.
Luxury spend if you take China for example in 2019 Bain estimate the Chinese but $70 billion.
While traveling and so they add 35% of the industry and a significant percentage I'll bet was then while traveling so and now they're now traveling which opens an incredible opportunity to service them online and you know several brands.
Reported strong demand in China.
We believe that's a that's a market that was already an incredible opportunities and we'll we'll we will have an additional opportunity now.
And also applies to other countries around the world the need to lease Latin America, we've seen very strong growth above the marketplace from the written those regions done, but I think about what's happening is that that paradigm shift.
In terms of the consumer.
Means that there's a paradigm shift in terms of the brands as well and department stores as they absolutely have to fast track.
Their online on very common strategy.
And here is where patch campaign I think we we are clearly the platform of choice for these global multi hundred million industry.
We are very focused in being a great partner for boutiques brands and the patmos us throughout his crises and part of the future.
And and clearly a weekend the system globally, not just in their domestic markets, but crucially in the last of luxury goods markets in the world, where where we have a real competitive advantage.
And you see that independence, we are witnessing.
And absolute acceleration throughout Q2 and into Q3 and Thats result of these paradigm shift ambient longstanding and sustain dynamics in the industry.
And your last question comes from a liner Doug Anmuth from JP Morgan Your line is open.
Great. Thanks for taking the question Elliot I know you talked about acceleration through Twoq, you and then into the third quarter should be you could give a little bit more detail around this momentum and what you're seeing.
July into August and little bit more on what gives you the confidence on growth accelerating into that 40% to 45% range in Threeq you. Thanks.
Hey, Doug.
Yeah, we certainly saw quite rapid acceleration towards the back of the cool so even over the last 10 days trades.
And that has continued.
Quite pleasing, we're seeing it actually come out of the U.S.
But in terms of demand so.
We've talked in the past the into China sewer bounced back from the back of Q1 Q1 within in Q2 start to UK in Europe.
Not to pick up by both be actively strong throughout Q2 as has the middle East Latin America, but the U.S. really.
Was quite sluggish until quite recently, we've seen this despite swipe jump back up.
That they have to added to where we're seeing the other major markets like China growing here in the platform.
UK in Europe in Russia, a growing he does a platform and now the we're starting to boost up as well means we're more confident about them.
We're also seeing that the as we said before the customer retention is the the customer interaction is strong.
Must continue to really drive betrayed so.
The legal to try we talked about across Q3 in terms of sheer GMB continues into the first six weeks of Q3 with.
Turning to even seeing user GMB from from new customers.
And the supply of product that's coming onto the marketplace.
It continues to.
The strong although slightly delayed a few weeks is we'd be talking about in terms of uploads versus prior years, but as it's been coming on stream.
It's very very strong quantities very very strong range any lastly across.
If pearson and the clients on our platform outside the marketplace. You know we're seeing continued strong.
In growth across the vast majority of adoption of online by their customers as well.
So this is really driving.
You know clearly six weeks and to be able to step up to 40 to 45 shows that we have seen strong growth across July heaters. We're.
The impact from wants for Q2.
And you know we've got 500000.
Plus new customers across Q2 that we showing the benefits of things a platform and rolling them straight into axes.
We've now got 2 million customers in excess and we are looking up those customers to push them up from brands to silver to gold through frequency of shot so.
So we really seeing the data tell us that the customers. The here to stay they're telling us through research that they're shopping online because as a pandemic 19 to shop more online because as a pandemic.
I'm really starting to I believe.
Developing grain behavior around buying luxury online, which means that sustain for the future. That's that's why I'm confident that we can be in a 40% plus 40% to 45% for for Q3.
And there are no further questions I'll turn it back to our presenters for some closing remarks.
Terrific. Thank you Rob well. Thank you all for joining up with Macquarie capital to your next quarter.
He same without.
I think a night.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].