) is a US-based reCommerce marketplace that instantly finds cash
offers for smartphones and electronics. The company provides a
technology platform matching individual sellers with large buyers.
It has had a phenomenal 2013, with revenue growth of 125% and
improved marketing spend efficiency. The company is targeting a
multi-billion dollar market, and has the competitive advantages
necessary to successfully capture and profit from this previously
In comparison to other marketplaces, uSell has a smaller market
capitalization that will grow more in line with its peers as it
continues to execute its business plan. Moreover, $4M of the
company's recent raise is slated for marketing that will bolster
business activity. With 29.4% insider ownership and an imminent
move to the Nasdaq, shares are ripe for the picking. Looking
forward, uSell has the potential to earn $0.35 to $0.40 in 2015.
With a conservative 25x P/E ratio, this equates to a PPS of $9.08,
or 100%+ upside potential.
uSell Is Experiencing Rapid Growth:
On a revenue basis, uSell's
has been substantial, up 125% y/y to $5.37M in 2013. This is well
above 2012's revenue of $2.38M. For the most recently reported
quarter ending March 31, 2014, the company
an improvement in its operating loss that improved by roughly $0.3M
Y/Y from ($1.61)M in the 1Q of 2013 to $(1.28)M in the 1Q of 2014.
The recently reported quarter was light, due to uSell implementing
an operating change in its business model, which we will detail in
this report. Marketing is about to ramp up, however, as the company
has nearly $4M slated for marketing that will be discussed in more
When reviewing uSell's operations, it is clear that the company
has seen impressive growth in various areas of its business.
(click to enlarge)
On a monthly basis, the number of unique visitors has been on an
upward trend. The amount of unique visitors was up, even as the
company pulled back media spending in the first quarter due to a
shift in its pricing model. This speaks to the robust nature of
uSell's business and the fact that more unique visitors equates to
more business for uSell. As more unique visitors reach the company,
we will see increased business.
(click to enlarge)
The number of shipping kits requested by individual sellers has
been on the rise, especially after the company augmented its
business model. Under the new model, buyers pay uSell a commission
only when they pay the seller for a received device. uSell then
recognizes revenue upon payment to the seller. This system replaces
the old model, where the company earned up-front lead fees from
buyers when sellers accepted offers on its website, regardless of
whether the seller ultimately sent in their devices to the
The new business model provides a lower risk for buyers,
provides buyers with a more competitive device acquisition cost,
allows buyers to offer higher prices to sellers, increased
conversion rates and throughput and will increase revenues and cash
flows for uSell. The below excerpt is taken from uSell's recent
10-Q (linked above), and explains the change in more detail.
Beginning in February 2014 and for the subsequent six weeks,
we phased in a major change to our business model.
Under the new model, we eliminated the upfront lead fees
to buyers and began charging transactional fees when buyers pay
sellers for received devices. Whereas prior to the change, we
recognized revenue upon acceptance of an offer and submission of
the form on our website, we now recognize revenue upon payment to
This aligns our incentives with sellers and reduces risk
It also creates a material change in our timing of revenue
recognition, as sellers typically receive payment 2-5 weeks after
placing orders on the website, depending on when they send in
their devices. The impact of the change on our timing of revenue
recognition significantly affected our revenues during the three
months ended March 31, 2014, and is expected to continue to
impact revenues through late April 2014. Additionally, we also
experienced a significant impact to our cash flows during the
three months ended March 31, 2014 since buyers are now paying
uSell after having received the devices from sellers.
Notwithstanding the lag in the timing of our revenue recognition
and cash flows during this transitional period,
we anticipate that revenues for the quarter ended June
30, 2014 will be higher than our revenues for the quarter ended
March 31, 2014.
Although we experienced a decrease in revenues during the
three months ended March 31, 2014 resulting from the transition
in our model,
we have seen a dramatic and directly correlated up-tick
in several of our marketplace metrics. Most notably, we have seen
meaningful increases in prices offered to sellers, conversion
rates, and throughput
as compared to the three months ended December 31, 2013 and the
month of January 2014.
Since the change, the average price offered to sellers on
our top 100 SKUs has increased by nearly 20%. This increase in
pricing has resulted in our conversion rate jumping by more than
100%. As conversion has increased, so has throughput, as measured
by Orders Placed on the website. We generated over 45,000 Orders
Placed in the month of April, compared to an average of 25,000
Orders Placed per month prior to the shift
. We are using Orders Placed as a leading indicator of GMV, since
GMV can only be reliably measured on a 5-6 week lag. In the
future, GMV will be our primary measure of throughput.
The full impact of the increase in throughput will not be
entirely realized in the short term. We have identified a strong
correlation between increases in throughput and organic customer
demand in the form of repeat and word of mouth traffic. Growth in
these free traffic sources is a key driver of future growth and
profitability. Therefore, we anticipate further positive
long-term impacts as a result of the change in our business
(Bolded for emphasis,
The new system has led to an increase in shipping kits requested
and adds more credibility to the platform, as sellers must be
credible in their listings in terms of the device's condition. If
the condition is different than what was originally stated, then
the buyer can offer a revised quote before the seller is
compensated. This system cuts any reason for a seller to misstate a
device's condition, creating a more credible marketplace over peers
such as eBay (
(click to enlarge)
uSell has also seen a large increase q/q on the number of repeat
customers. This speaks to the stickiness in uSell's user base.
Repeat customers signify increased business without spending
marketing dollars to reach them. The above statistics demonstrate
that 2013 was a growth year for uSell's business. Furthermore, 80%
more devices were
through the platform than in the prior year. The above statistics
pertaining to the growth repeat customers are very positive for the
company's operations. Overall, uSell has been an
for over 200,000 devices.
(click to enlarge)
As shown above, the cost per visitor is on a downtrend due to
repeat customers, which signifies uSell's growing efficiency as a
business and ability to rein in costs. Decreased costs are also
apparent in the company's improved marketing efficiency spending
from 109% of revenue in 2012 to 88% of revenue in 2013. Decreased
marketing spending and increased user growth as site traffic is up
demonstrates uSell's overall growing efficiency as a
Due to uSell's increased marketing efficiency, if the company
were to spend a significant amount of money on marketing, it would
enjoy a higher return, due to its increased marketing performance
metrics. In the company's recent
, explained in more detail later, uSell plans to use $4M for
marketing purposes. It is my opinion that this large stake set for
marketing can increase uSell's top line more than ever before, due
to the company's increased marketing efficiency metrics across the
uSell Is Targeting A Market With Ample Supply:
The supply side of this equation is breadth with opportunity.
$50 billion-$75 billion of in-home inventory has not been
activated, with electronics accounting for $25B of this amount.
Moving further into 2014, uSell is projecting that $150M worth of
smartphones will be sold in 2014. This number applies to
smartphones that consumers will want to resell through a
marketplace, not the total number of smartphones sold in 2014.
Using the average value per device on uSell of $80, this translates
into a $12B opportunity. If the company is able to obtain just a 1%
market share, that would equate to a revenue figure of $120M. This
is well above 2013's revenue of $5.37M and why we consider our
later revenue projections to be conservative in nature. There is
not only $25B of supply for uSell to target now, but an additional
$12B to capture through 2014.
Another point to consider is that nearly 80% of iPhone sales in
the next year could be
. This amounts to $110M in 2014 and $130M in 2015 for iPhones
alone. With the onslaught of new devices, such as the Samsung (
) Galaxy S5 and the Apple (
) iPhone 6, replacement sales could increase as consumers sell
their old phones to buy new devices. This will boost business for
uSell's smartphone reCommerce marketplace.
Outside of its own website, uSell has a
with Staples (
), the second-largest e-retailer, with 27M monthly visitors. This
relationship powers online trade-ins through Staples' website to
the gain of uSell's top line. This is a massive opportunity for the
company, due to Staples' large visitor presence. Furthermore, the
model is scalable and can be rolled out to other retailers in the
future. It is our opinion that uSell's partnership with Staples
will further help the company target the ample supply in the
uSell Can Successfully Do Business In The Currently
The current state of supply in the smartphone reCommerce
industry is fragmented, with many buyers, sellers and exchange
The single most paramount concern is whether or not uSell can
navigate the competitive landscape in the smartphone reCommerce
industry to capture the enormous available supply.
It is my opinion that uSell is in a unique position to triumph over
its various competitors.
uSell vs. eBay:
Historically, buyers and sellers used to only meet on eBay,
where the condition of items could have differed from what was
originally stated. The addition of Power Sellers to the eBay model
was positive, although these large sellers are challenged with
finding a supply stream that is large enough.
When comparing uSell and eBay, we note that consumers won't have
to expend time and energy monitoring an auction, researching
potential rates, or dealing with shipping and/or customer
assistance on their own. Moreover, there are no quality issues with
uSell. Revised quotes are sent to the seller, should there be any
question regarding an item's condition when it is received, before
any money changes hands. This adds more credibility to uSell's
marketplace over eBay's. This is a major advantage over eBay's
ship-and-forget system. An additional perk is that with uSell, the
seller does not incur eBay's seller fees or PayPal's fees.
uSell deals with large buyers of smartphones, so they can
negotiate deals with eBay's PowerSellers for a more robust
relationship. This also solves the problem that PowerSellers have
finding large sources of supply.
uSell vs. ecoATM:
Next on the list is ecoATM. This company places kiosks in malls,
which will buy devices from consumers. The key problems with ecoATM
are that the pricing could be
and it is a lengthy ordeal -- even requiring a driver's license.
Unfortunately, ecoATM also receives a large portion of stolen
devices, and many consumers have
that trying to retrieve them is also an extremely frustrating
ordeal. Some consumers have stated that the machines accept the
device before alerting you if the machine has enough cash to pay
out. If this is not the case, you will have to wait to receive a
check in the mail.
uSell triumphs over ecoATM, due to the fact that the company
offers quick cash offers for devices. The platform is also not
troublesome to use, and is not a lengthy nightmare. uSell's system
is fast and extremely easy to use in the face of ecoATM's
structure, which is not only long but requires you to leave the
house. uSell's exchange can be completed right from your computer,
so there is no need to leave your house or risk your devices being
stolen on the way. It is worth noting that Outerwall (OUTR)
ecoATM for $350M last year, nearly 17.5X higher than uSell's market
uSell vs. Gazelle:
(click to enlarge)
Gazelle is another direct competitor to uSell. The above chart
illustrates the platform benefits uSell offers to the consumer, as
the company has enjoyed more unique visitors over Gazelle, even
with less marketing spending. This demonstrates uSell's superior
ov er Gazelle. On a deeper level, this proves that consumers deem
uSell's platform superior over Gazelle's, as more consumers have
used it, despite less marketing reach.
A key advantage that uSell has over Gazelle is the fact that
uSell does not incur the costs of taking inventory of the devices.
Gazelle has to not only account for the devices and handle shipping
and handling out of its warehouses, it incurs all of the costs of
warehousing as well. uSell acts as an intermediary, linking buyers
and sellers with their devices faster than ever, without having to
incur the costs of taking inventory of the devices. In addition,
this intermediary relationship facilitates the process of linking
buyers and sellers, cutting down on time significantly.
uSell links sellers with larger buyers, which is more robust
than Gazelle's drive to sell to individual consumers. This way,
uSell can negotiate agreements for higher quantities and develop
stronger business relationships over Gazelle's system. uSell has
substantial marketing efficiencies over Gazelle with regard to
customer acquisition. This is due to the fact that uSell has over
60 power buyers to offer competitive pricing on various SKUs,
whereas Gazelle is the sole buyer from sellers.
Lastly, uSell's system of allowing for revised quotes to be sent
from buyers to sellers if the received device's quality differs
from the original listing also applies as an marketplace
credibility advantage over Gazelle's platform.
uSell vs. carriers' programs:
Today, many carriers offer trade-in programs. I believe that
these programs are not as attractive as uSell's platform, since
they only offer gift cards that can take
to receive in some cases. These gift cards can only be used at
their own stores, such as Verizon (VZ). This positions uSell as the
medium of choice for consumers who want cash for their old
Other than earning cash for your device instead of a gift card,
uSell has better pricing options for consumers. For example, for a
16GB iPhone 5S, Verizon will offer up to $300 for the device. On
the other hand, uSell offers $352 for the same device in good
condition. USell offers even more money for the device in flawless
condition. It is my opinion that the ability to get cash for your
device instead of a gift card to your carrier and more money for
your device gives uSell a competitive advantage over carriers'
When walking into a Verizon store, the drive is to sell you a
new phone, not question what you are doing with your old phone. As
such, trade-in programs through carriers on the retail level are an
afterthought, with stores focused mainly on new device sales.
Closing Competitive Thoughts:
I believe investors' number one concern is whether or not uSell
will be able to compete in this fragmented industry to capture the
ample supply that is available. I believe it can, as it leverages
the buying power of merchants, while also providing a phenomenal
customer experience for individual sellers. For example, the
company's seller interface is easy to use, with a shipping kit
delivered directly to the seller's house in just a few days.
Overall, uSell will be successful in the face of its peers, as its
competitive advantages will help consolidate a currently fragmented
smartphone reCommerce marketplace.
Trade-in Value (Verizon iPhone 5S 16GB in Good
Comparable Businesses Trade At Much Higher
As uSell continues to grow and execute its business plan, we
believe shares will be valued more closely to the company's larger
marketplace competitors. With a small $25M market cap, uSell has
plenty of room to grow. Looking at other marketplace success
stories provides insight and demonstrates the potential for these
businesses to grow. I am comparing USEL to the companiesbelow, as
they can provide insight as to how highly the market values
competitive and successful marketplaces. The companies below all
work to offer a marketplace for different industries, since there
are not a plethora of public reCommerce marketplaces for
smartphones -- but they can provide valuation insight for
successful marketplaces in general.
Market Capitalization To Revenue
Looking at these marketplaces, Airbnb
a $10B valuation andUber
an $18.2B+ valuation. Airbnb is a private company and a travel
website, but its financials include
of $250M and a market cap close to $10B. This equates to a market
capitalization-to-revenue multiple of 40X, which is much higher
than uSell's 4.8X multiple at year-end 2013.
A few of these comparisons are an apples and oranges comparison,
although there are few direct peers for uSell. The closest
comparison to uSell is OpenTable, as it is a technology platform
bringing buyers and sellers together, much like uSell's platform.
As such, readers should be aware that these are not direct
comparisons, but can offer insight to other marketplace peers.
Moreover, it speaks to the fact that uSell does not have many
direct peers, meaning it is one of the sole direct companies
providing a smartphone reCommerce marketplace.
came across that Priceline would acquire OpenTable for $2.6B, or
11x 2014 revenue and 27x 2014's EV/EBITDA. OpenTable is a pure
marketplace, allowing consumers to make restaurant reservations.
This steep 11x revenue price is more than double uSell's current 5x
Another competitor, Uber, connects consumers with drivers and
taxis. Uber is looking for an $18.2B valuation. Reports were
last year stating that the company earned $20M per week in revenue,
or just over one billion per year. With an
$18.2B market cap, this gives it a market cap to revenue multiple
of 18.2x, much above uSell's 4.8x ratio.
*Used in projections
**Current market cap
Amazon (AMZN), the largest online marketplace, sports a 487.6X
. This is the reason we believe our 25X P/E expectation for uSell
in our later projections to be very conservative in nature for a
Insider Ownership Is An Excellent Sign:
Insider ownership is an excellent indicator that management's
interests are aligned with shareholders'. This is especially
coveted at the microcap level, where management expertise is the
company's biggest asset. uSell's insiders
29.4% of the shares outstanding. This includes chief financial
officer Daniel Brauser's 12.6% stake and chief operations officer
Nik Raman's 5.4% stake. Both Mr. Brauser and Mr. Raman are
directors of the company as well. In total, all of the company's
directors, executives and over 5% shareholders own 90.49% of the
company's shares. As such, shares could move higher on positive
news, as the supply of shares is small. The recent offering that
can improve liquidity in the company's shares mitigates this
Insiders are continuing to demonstrate their confidence in uSell
by purchasing shares. On June 17, insiders Michael Brauser, Daniel
Brauser and Nik Ramen purchased (
) a total of 10k shares at prices between $3.48-$3.88. Another
insider, Michael Brauser is chairman of the board at uSell.
Together with his wife, he owns 499,714 shares that equates to an
approximate 6% stake after the recent S-1 closes. Michael Brauser
served as a co-chairman of InterCLICK before Yahoo
the company for $270M.
uSell's story has also attracted the interest of billionaire,
Dr. Phillip Frost, the trustee of Frost Gamma Investments Trust.
Back in July 2013, uSell issued a $300k note to this trust in
exchange for a $300k investment. Dr. Phillip Frost converted this
note into 100k shares of preferred stock at $3 per share.
Overall, uSell has a highly motivated, powerful leadership team,
coupled with an impressive set of large and experienced
A proficient management team is one of the most important
factors when deciding to invest in a microcap company. Outside of
their ownership in the company, Mr. Brauser and Mr. Raman are an
extremely capable team. Mr. Brauser has a background in consumer
marketing and activating inactive markets. He also founded Health
Benefits Direct that was a disruptive insurance marketplace. Mr.
Raman is a Harvard Business School graduate who founded EcoSquid
while being a finalist in the HBS business plan competition. He
developed an innovative marketplace model to reCommerce, much like
he is doing at uSell. After meeting with both company executives at
the Marcum Microcap Conference, I left knowing that uSell has two
extremely capable individuals driving the company forward.
Uplisting Is A Near-Term Catalyst:
uSell's shares currently trade OTC. We believe a move to the
Nasdaq could be a substantial near-term catalyst.
On April 15, 2014, uSell filed an
for the public sale of $10,000,000 worth of units of shares and
warrants. In its Q1 report, uSell
the proceeds could be used to meet the Nasdaq's shareholders'
equity listing requirement. This is the only requirement holding
the company back from uplisting, and the raise mitigated this
roadblock. These two filings propose that a move to the Nasdaq is
an imminent event, as the only pending requirement has been
The move to the Nasdaq would likely boost shares, as this is a
superior exchange that is accessible to a larger expanse of
investors. This uplist opens the door to a wider array of retail
investors, hedge funds and analysts who can research the company's
potential. As an aside, the raise will add to liquidity in the
company's shares, which are currently held by a small group.
Trading on a larger exchange also creates exposure to analysts
researching uSell, which then will spur the inflow of investment
dollars into the company.
uSell is an extremely under-the-radar company, with virtually no
investment coverage. As the company's investment story reaches the
desks of analysts, investors' shares could see additional upside. A
move to the Nasdaq can perpetuate this rationale through increased
company awareness, liquidity and reach.
2015 Projections And Valuation:
USell has had spectacular 125% revenue growth in 2013, along
with very high gross
of 92.4% for the year. Further, uSell had a decrease in the amount
of marketing spending to 88% of revenue in 2013 from 109% in 2012.
Looking forward to 2014, I believe uSell's growth story will
continue, due to its strong competitive advantages in consolidating
a fragmented market that is ripe with supply.
uSell has seen impressive organic and return visitor growth,
increased marketing spending efficiency and decreased cost per
user. We believe this trend will continue in 2014 as the company
continues to grow and develop, due to its strong competitive
advantages. Management's $4M of the $10M raise slated for marketing
will also bolster the top line in the coming quarters. Furthermore,
uSell's increased marketing efficiency means this money will be
more effective now than ever before.
The company's Q1 is an outlier, but this is due in part to a
one-time event, a non-cash expense of $874K as a result of the
company's conversion of its Convertible Notes in 2014. This
includes the balance of debt issue costs of $9,000. The remaining
amount from the February 2014 convertible notes has been recognized
as non-cash expenses, therefore not viewed as impacting future
earnings. Q1 would have been a bottom line improvement over the
previous quarter if it had not been for this event.
uSell's is a high-growth story due to its business performance
and successful navigation in a fragmented market, attributed to its
strong competitive advantages. With 35% q/q revenue growth in 2014
and 100% y/y to 2015, we believe revenues will surpass $13M in
2015. Further, we view this as a conservative revenue target, as
just a 1% market share of 2014's supply alone would result in a
$120M revenue figure. This offers a huge potential market and
opportunity for uSell to target and capture moving forward.
Looking at uSell's recently filed
, th e company's $10M raise will increase the total amount of
outstanding stock to 8,332,149. As such, we have expanded the share
count in our projections for the next quarter, as we assume the
deal will close before uSell's imminent uplist to the Nasdaq. We
also believe a 25X P/E ratio is conservative in the face of uSell's
impressive growth and in comparison to other marketplaces, such as
Amazon's 487.60x P/E ratio. Further, uSell's attractive GM will
rise to levels seen in 2013, due to a more efficient marketing
spend moving forward. The company stated that its G&A expense
, and we believe it will remain steady moving forward.
With a conservative 25x P/E ratio,uSell's EPS could reach
$0.35-$0.40, resulting in 100%+ upside potential.
Other Valuation Methods:
Revisiting Uber and Airbnb, we can value uSell on the same
market capitalization-to-revenue metric as an alternative valuation
method. As uSell continues to grow, the marketplace will be more
ready to give it a higher valuation. Using uSell's current 4.8X
market cap-to-revenue ratio of my 2015 revenue estimate, uSell
could be worth $130M. This is a conservative estimate, as it
accounts for no expansion in uSell's price/revenue ratio.
This is not a generally used valuation method, but does provide
for more insight into the company's potential future valuation.
Further, since Airbnb and Uber are private companies, this is one
of the only valuation metrics that can be used to compare them to
uSell. This comparison is worthwhile, as they are marketplace
- Any increased push by carriers with relation to their
trade-in programs could be a risk for uSell. We believe this
issue is currently mitigated by these companies only offering
gift cards to be used at their own stores, whereas uSell offers
cash. Further, it is our opinion that uSell offers a greater
trade-in value for consumers, such as what was seen in trade-in
value comparisons of a 16GB iPhone 5S.
- uSell is a microcap company that offers its own risks that
investors should be aware of, such as decreased liquidity. We
believe that the company's nano size is mitigated, as the $10M
raise will offer more liquidity in the company's shares.
Investing in microcaps requires a patient and watchful investment
style; as such, I have a 1-2 year timeline.
- The market currently has several key players that can offer
strong competition for uSell. I believe this risk is mitigated
for two key reasons -- the first being uSell's competitive
advantages over each specific competitor, as described earlier.
Secondly, I believe that the market is large enough for several
players to conduct business, as such, uSell only needs a 1%
market share to experience significant growth from current
- If uSell's peers are able to close the competitive gap by
offering more innovative services, this could hurt uSell. I
believe this is mitigated by the inherent structure of these
competitors and the fact that uSell has numerous advantages over
these peers. For example, the fact that ecoATM is a lengthy
process and Gazelle's role as an intermediary holding stock and
linking individual sellers to buyers. Additionally,USell's
structure links individual sellers with larger buyers for better
pricing and a more robust relationship.
- Investors should keep in mind that uSell is currently at
post-reverse split lows. I believe this is due to uSell's
investment story flying way under the radar, as this is the first
article on the company, and due to the fact that this investment
story will take several quarters to unfold.
- Furthermore, any higher pricing options for
customers/intermediaries may challenge uSell's business, such as
the risk of an increased push by carriers that was discussed
earlier in the risks section.
With the risks in mind, we believe an investment in uSell has a
very favorable risk/reward profile. uSell is an extremely
under-the-radar company, whose investment story has gone uncovered,
until now. An imminent move to the Nasdaq will make the company
more available to investors and analysts.
Due to the company's robust competitive advantages in
consolidating a fragmented but large market, I believe uSell can
continue its high growth trajectory. With a highly capable
management team and strong competitive advantages, uSell's shares
could double in the coming year.
When contacting the management of uSell, it was confirmed that
they were interested in taking part in an interview with
SecretCaps. Unfortunately, they are unable to due to their current
pending registration. While attending the Marcum Microcap
Conference, I scheduled a meeting with both Mr. Nik Raman and Mr.
Daniel Brauser. I was impressed by their experience, drive and
motivation. It is my opinion that they are a highly capable
management team -- the most crucial part of microcap investing. An
interview with uSell's management team will be sent out to
subscribers in the coming weeks.
I am long shares of uSell from an average price of $3.78 per share.
This article was released first to
subscribers on June 9, 2014.
A Q/A with management will be sent out to subscribers in the coming
weeks as well. uSell is on SecretCaps' conviction list for this
The author is long USEL. The author wrote this article themselves,
and it expresses their own opinions. The author is not receiving
compensation for it. The author has no business relationship with
any company whose stock is mentioned in this article.
This article is informational and is in my own personal opinion.
Always do your own comprehensive DD before executing any trades or
investments. See website disclosure.
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