712  High-Growth Companies
(or plans to generate) revenues. Understanding how a start-up makes money 
is critical. Technology start-ups rely on many revenue streams, including ad-
vertising, product sales, subscriptions, and commissions, among others. Many 
young companies build a product or service that meets the customer’s need, 
but too many can’t identify how to monetize the value they provide.
Understanding a company’s growth potential requires identifying which 
product categories are part of its current and future portfolio. To this end, the 
left side of Exhibit 36.2 presents Farfetch revenue by product type. While high-
end fashion apparel accounts for the majority of its sales, the company also 
sells high-end jewelry, handbags, and shoes.
In the case of luxury goods, it is important to assess where the company 
sells its products, since the luxury-goods market varies dramatically across 
regions. Understanding the geographic presence will help with sizing future 
markets and assessing the impact of potential competition. The right side of 
Exhibit 36.2 presents Farfetch’s revenue by geography. Although Farfetch 
launched in Europe, it now has a significant presence in the Americas and Asia.
Across these product lines and regions, Farfetch generates revenue from 
multiple activities. Whenever possible, try to separate sources of revenue, 
as each will have its own dynamics concerning growth, profitability, and re-
quired investment. Farfetch’s primary source of revenue is from its third-party 
(3P) marketplace. As in other popular marketplaces, a consumer purchases 
a product from a company other than Farfetch, and Farfetch facilitates the 
transaction, taking a portion of the revenue. In a technology-enabled market-
place, the level of the commission is known as the “take rate,” and it varies 
substantially across product categories. For Farfetch, the take rate hovers around 
30 percent, higher than most technology marketplaces. As part of the transaction, 
EXHIBIT 36.2  Farfetch: Revenue by Product Type and Geography
%
Apparel,
58
Jewelry,
17
Handbags,
9
Other,
16
Europe and
Africa, 40
Asia-Pacific,
31
Americas,
29
Revenue by type, Q2 2018
Revenue by geography, FY 2018
Source: Farfetch F-1 filing and 2018 20-F filing; Deutsche Bank estimates.

A Valuation Process for High-Growth Companies  713
Farfetch will also charge for shipping, customs, and taxes. While these fees are 
bundled together from the customer’s perspective, Farfetch separates fulfill-
ment-related charges from other revenues.
In addition to the marketplace, Farfetch generates revenue from three 
other sources. The company sells luxury goods direct to consumers through 
its platform (first-party sales, or 1P) and through two London-based retail 
stores, known as Browns. Through a business unit it calls Black & White (now 
known as Farfetch Platform Solutions), Farfetch also works directly with lux-
ury brands to operate their e-commerce sites.
Since a company’s take rate varies over time and across businesses, do 
not start your valuation with company revenue, but rather with gross mer-
chandise value (GMV). Exhibit 36.3 presents Farfetch’s GMV and resulting 
revenue by operating segment. GMV represents the value of goods sold on the 
platform, net of returns—$1.4 billion in 2018. Since Farfetch keeps only a por-
tion of the gross merchandise value traded, revenue is limited to the portion 
retained. This is not unique to Farfetch. Many technology companies report 
both gross and net sales. For instance, ride-sharing companies report their 
gross bookings but net out driver payments before reporting revenue. Assess 
the market power of various stakeholders, like luxury boutiques or global 
luxury brands, to determine the future direction of take rates.
For in-store sales, first-party sales, and platform fulfillment, revenue 
equals the gross merchandise value. Since direct sales and the third-party 
marketplace have different levels of profitability and capital needs, always 
analyze them separately. In this chapter we examine only the third-party mar-
ketplace in detail, though we estimated the other revenue sources using a 
similar methodology.
EXHIBIT 36.3  Farfetch: Revenue Model, 2018
$ million
Gross profit: 
299
Third-party merchandise value1 
= 1,192
Third-party 
commissions1
= 387
1,408
Retail store
Gross merchandise value
Revenues
602
× 32.5% take rate
Fulfillment
First party
16 
98
102
16 
98
102
1 Includes Black & White outsourcing revenue, estimated net of returns.
Source: Farfetch F-1 filing and 2018 20-F filing, Cowen and Company estimates.