Last month Apple (APPL) released the latest incarnations of its flagship smartphone, the iPhone 5s and the iPhone 5c. During the first weekend the phones were available, consumers bought more than nine million handsets. Of these, a reported 83% were upgrading from a previous iPhone. A number of companies stand to benefit from this mass upgrade, but its unique business model makes one stand out in particular. That company is uSell.com (USEL).
How does uSell work?
uSell offers a platform through which cell phone owners can research, make contact with, and sell their handsets to interested buyers. When a user registers their device on the company's online platform, they list the item's condition and specifications. When listing is complete, the platform presents the user with the offer prices of a range of different buyers. If the user decides they want to sell at one of the available prices, they agree to a sale and uSell sends postage and packaging material to the user. All the user has to do is package the item and have it available for pickup. Upon receipt, uSell then sends the item to the buyer.
How does this differ from other resale models?
When a cell phone owner wants to upgrade they currently have a number of options. For the sake of continuity, let us imagine the potential seller owns an iPhone, and wishes to upgrade to a newer model iPhone.
Their first option involves dealing with Apple directly. An iPhone owner can take their old handset to an Apple retail outlet and trade it in for credit on an Apple gift card. They can then use this gift card to subsidize the purchase of their new handset. At the end of August, Apple reportedly offered about $253 for a 16GB AT&T iPhone 5 in good condition.
A second option is through an online trade in program such as the one Amazon (AMZN) offers. iPhone owners can send their handset to Amazon, and receive a certain amount of Amazon credit which they can then spend on anything listed on Amazon's marketplace. The current rate for an iPhone 5 is $264.50 in Amazon store credit.
Other retailers also offer the same sort of deal, trading in a handset for store credit. Target currently offer $200 for the iPhone 5s, and Wal-Mart (WMT), anything up to $300 depending on the condition of the device.
Finally, but by no means exhaustibly, iPhone owners can sell privately through eBay (EBAY) or another online marketplace.
The uSell model differs from all of these options in that the company's platform aggregates a range of offers from different potential buyers. In doing so, the seller receives the highest possible price for their handset, and receives it in cash. As a comparison, the price sellers can expect to receive for an iPhone 5 through uSell is $295-$308.
Buyer quality
Another key difference in the way uSell operates is the quality of buyers it offers its users. Rather than collect a fee from the seller, as with other online marketplaces like eBay and Amazon, uSell forms partnerships with its buyers and collects its fee from them. The formation of this partnership requires uSell to exact a certain level of due diligence before it allows buyer to make any offers to purchase, which dramatically reduces the potential for fraudulent activity on the site.
Why uSell?
In short, uSell offers investors the chance to gain exposure to a rapidly expanding market through a company that has considerable upside potential. Analysts estimate the resale market to be worth over $57B in 2013, and that this will increase as awareness of the potential benefits of recommerce grows.
Why now?
uSell launched its online recommerce marketplace platform in January 2012. Since then, it has reported six consecutive quarters of sequential revenue growth, with gross margins above 90% during each. It has increased its number of partner buyers from five to thirty-five, and reduced the time it takes to set new buyers up on its platform from six weeks to six minutes. In June this year, the company announced it had developed a strategic plan designed to accelerate the growth phase of the company, and that it had hired an investor relations firm to help it achieve its goals. Investors have the opportunity to get in at the first phase of the implementation of the company's accelerated growth strategy.
Expanded offerings
In a recent announcement, uSell detailed its intention to expand its offerings from just cell phone and small electronic resale to a range of other items including women's and children's apparel, textbooks and video games. This could serve as a catalyst to the company's growth in two main ways. The first is simply rooted in revenue growth. The higher the number of products an individual can sell through the platform the higher the number of buyers uSell can partner with, and the higher the number of transaction fees the company can derive from these buyers.
The second concerns the cyclical nature of the cell phone market. As was demonstrated last month with the release of the iPhone 5s, a cell phone resale company generates the vast majority of its revenues around the time of device releases. With its expanded offerings, uSell exposes itself to year-round revenue generating opportunities.
A quick look at the company's financials
Last month uSell reported record second quarter financials. As aforementioned, revenues increased for the sixth consecutive quarter to $1.22M. This compares to $591,000 for the same quarter last year. The company generated these increased revenues while cutting operational expense from $2.56M for the second quarter of last year to $2.36M for the same quarter this year. Gross profit increased from $543,000 in the second quarter of last year to $1.13M in the second quarter of this year. Net income for the same periods rose from ($6.14M) to ($1.13M).
Conclusion
The rapid growth in consumer awareness of the financial benefits of recommerce will drive concurrent growth in the industry. The accelerated growth strategy that uSell's management has eluded to in its recent announcements suggests that the company is positioning itself to take advantage of this growth. Investors that act now have an opportunity to get it at the ground level of a company that is nearing profitability, and has the potential to become a leader in the recommerce space.
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