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uSell.com Emerges As Competitive Online Marketplace
Over the past decade, online marketplaces have been springing up at a rapid fire pace. Consumers continue to seek new outlets to both buy and sell products at reasonable prices with high efficiency. This need can be seen in the re-commerce industry, which represents an annual market of $57 billion. Although eBay (NASDAQ: EBAY) has been the dominant player for the better part of a decade, it is facing increasing pressure from other marketplaces for cost and convenience reasons. One such marketplace, uSell.com (OTC PINK: USEL), appears poised to rival eBay for years to come.
uSell.com is a re-commerce marketplace that helps individuals turn unused items into cash. The site ensures that customers get the highest possible payouts with the least amount of hassle by facilitating risk-free transactions with professional buyers. It also enables consumers to research the current market value for their items, review ratings and customer reviews of each buyer, find and compare offers for those items, and complete the transaction on its website directly with the buyer. The company’s direct response marketing model drives traffic and conversions from its consumer facing website, uSell.com. Its online marketplace helps consumers to monetize household items, such as small consumer electronics and other common items. The company is also able to offer professional buyers a low risk, cost-efficient customer acquisition model.
As with all great businesses, the vision always comes from the top of the management chain. And uSell.com has one of the sharpest and most experienced leaders in the industry. Sergio Zyman was appointed as the Chief Executive Officer on October 10, 2012. Mr. Zyman is extremely experienced in marketing which, is exactly what uSell needs at this point. In the mid-1990s, Mr. Zyman was the Chief Marketing Officer for The Coca-Cola Company (NYSE: KO). After his impressive tenure with Coca-Cola, Mr. Zyman went on to start the Zyman Group, an international marketing consulting firm. In 2008, MDC Partners acquired the Zyman Group. Now that investors know who is leading the company, it’s time to understand how the industry dynamics affect uSell.com in a positive way.
This industry has been undergoing consolidation which has resulted in significant takeover activity at high valuations. For investors of re-commerce companies, this can mean seeing significant stock returns overnight. One example of this takeover activity occurred late last year when Priceline (NASDAQ: PCLN) acquired Kayak Software Corporation for $1.8 billion. Kayak investors saw their holdings increase by almost 30% immediately after the deal announcement. Priceline was most attracted to Kayak’s technology platform and high gross margins. As investors will soon see, both of those criteria apply to uSell.com as well. Besides increased takeovers, the industry has seen significant earnings and revenue growth which, can be seen by looking at the industry’s dominant player, eBay.
For investors to truly understand the potential of uSell.com, let’s look at another the dominant player in the industry, eBay. Investors in eBay have seen their shares appreciate by more than 75% over the past 2 years, sending the company’s market capitalization soaring to over $74 billion. This run has been driven by consistently strong revenue, net income, and strong leadership. In 2010, eBay’s total revenue came in at $9.15 billion. In 2011, revenue increased by more than 27% to $11.65 billion. And then once again, revenue grew by more than 20% in 2012 to come in a record high level of $14.07 billion. This astronomical growth has been driven by consumer demand but also strong vision by eBay’s leadership team. So what hints can this give to investors interested in uSell.com? Well it certainly is telling of the re-commerce industry’s potential. What’s even more important is that there are quite a few consumers who are displeased with some of the quirks in eBay’s system which could present an opportunity for uSell.com.
Some consumers, mostly sellers, have complained about some of the changes that eBay has made to its website over the past couple of years. A few of the complaints include high selling fees, requirement to use PayPal to collect money which charges more fees, and the high possibility of fraud from buyers. uSell.com has advantages in all 3 of those categories. First, the website is completely free to use and sellers don’t have to pay shipping. The buyers will actually send the sellers the shipping kit which makes it extremely efficient for sellers. Second, sellers have the option to choose a payment method from a variety of choices. And third, all buyers are professionally screened by uSell.com which makes fraud extremely difficult and very rare. These key differentiators have led to outstanding growth in the company’s fundamentals during the last quarter.
For the quarter ended March 30, 2013, uSell.com saw a dramatic increase in revenue. During the last quarter, revenue came in at $1.05 million, compared to just $244,607 during the same quarter a year ago. That represents a quarter over quarter increase of more than 320%. Additionally, and even more impressive, is that the company currently operates with 90%+ gross margins. If the company continues to operate with those margins and continues to grow revenue like it has over the past 5 quarters, the company should easily achieve profitability once annual revenues reach $10 million. Investors are most likely wondering how long it will take to generate this kind of revenue. With uSell’s recent announcement that the company plans to diversify into more categories, it shouldn’t take nearly as long as most expect.
On June 25, 2013, uSell.com announced its expansion into women’s and children’s apparel, textbooks, video games and gift cards. This represents a huge opportunity to leverage the company’s existing platform and customer base to expand into new verticals. Customers will now be able to turn even more household goods into cash besides just electronics. Typically, customers only sell their cell phones once every 18-24 months. Now that consumers will have the ability to sell much more, the company’s revenue should really start to take off.
Despite the potential, it’s important for investors to understand the risks associated with this company. The company is operating with limited cash. Currently, uSell.com only has about $1.6 million in available cash. During the last quarter, the company had a loss from operations of roughly $1.6 million. However, for investing purposes, the loss was actually considerable less. For the quarter, the company experienced a large depreciation expense of $69,075 and a large stock based compensation expense of $938,751. Excluding those unusual items, the loss for the quarter was only about $590,000. Still, the loss is fairly high and does indicate that a secondary offering will be coming at some point in the future so investors should be prepared for that.
Even with the risks associated with uSell, the potential is undeniable. With a limited product offering, the company has already managed to grow its revenue by more than 300% quarter over quarter. With the recent expansion into a broader selection of products, the company appears poised to become an industry leader and potentially compete with eBay in the very near future.
