E USell: Why This $2 Stock Should Be Trading Above $6 Today

Summary:

  • uSell’s business model has been validated by partnerships with Fortune 100 corporations.
  • uSell just reported 40% year-over-year revenue growth for Q2 and Q4 results could be considerably better.
  • Recent insider and institutional buying confirm undervaluation.
  • NASDAQ up listing will be a positive catalyst for shareholders.
  • Strong cash position and no debt amplify undervaluation.
  • 92% gross margins and low overhead give this company tremendous profit potential.
  • This company has grown so rapidly that it is now receiving more unique visitors to its website than its prime competitor.
  • The company’s total addressable market exceeds $100 billion annually.

I am long uSell, (USEL), an undiscovered, undervalued and rapidly growing competitor to eBay (EBAY) and Gazelle.com. USell just reported 40% year-over-year revenue growth for Q2, and I expect revenue growth to accelerate later this year. The company’s business model has been validated by partnerships with Staples (SPLS), and TracFone (AMX).

USell is currently valued at $20 million, fully diluted, but I estimate the company should be valued above $60 million today, and could be worth considerably more within 12 months if the current level of revenue growth remains on track.

Right now Wall Street knows nothing about this company or its 92% gross margins, low overhead, and partnerships with Fortune 100 companies. But that will change, and I expect the share price to more than double once investors discover this unknown gem.

70% quarter over quarter growth in orders placed

While 40% year-over-year revenue growth is impressive, the number that really highlights uSell’s undervaluation is the 70% quarter over quarter growth in orders placed. Orders placed during the quarter ended March 31, 2014 were 85,000. That number grew 70%, to 146,000 orders placed for the quarter ended June 30, 2014.

Orders placed is a direct indicator of future revenue, and quarter over quarter orders placed growth of 70% confirms that uSell is capturing market share from competitors.

IPhone 6 release could accelerate growth even further

I expect the iPhone 6 and 6 plus to be two of Apple’s most successful products, and millions of customers will be converting to these new devices. When that happens, they will need to sell their old smart phones, and uSell should be able to capture a large percentage of this business. As a result of the iPhone 6 release, I wouldn’t be surprised to see quarter over quarter revenue growth to go beyond the current 40% level. With growth like that, uSell should be trading at a steep premium, not a discount.

Why I like uSell

USell gives customers a way to sell their electronic devices instantly, in a completely hassle free environment. USell's largest competitor is eBay, a great company valued at $65 billion. Like eBay, USell doesn't hold products in inventory, it's platform just connects buyers and sellers. USell generates revenue by charging a commission for each transaction.

But from a customer perspective, some aspects of uSell's business model are superior to eBay's which is a prime reason uSell's revenue growth is so impressive. Customers are recognizing that when it comes to selling devices, it's much easier to do so with uSell. This also makes uSell a buyout candidate for eBay.

Here are some additional reasons I have invested in uSell:

Number 1: USell's global cell phone total addressable market exceeds $100 billion annually. When you include tablets, laptops and a myriad of other retail devices, this market is substantially larger.

Number 2: Since uSell is a software-based business, the company is capable of massive scaling, with minimal additional costs. As uSell grows, leverage amplifies what is applied to the bottom line.

Number 3: Both uSell and the market it is addressing, are in very early stages of development. As is always the case, investors who get in early, reap the greatest rewards as long as the company is effective with its execution.

Number 4: Dr. Phillip Frost bought 9.99% of the company (most of my Frost investments have provided returns in excess of 100%). This is just one more validation of the company's technology, because the level of due diligence Dr. Frost and his team are capable of conducting is high.

Number 5: Michael Brauser owns over a 9% position in uSell and is chairman of the board. Mr. Brauser is a well renowned entrepreneur who has developed and sold numerous tech companies for a combined total approaching $2 billion. The presence of Mr. Brauser (along with Dr. Frost) indicates that uSell has valuation potential far beyond where it is trading now.

Why I prefer uSell to eBay

When I buy electronic devices, eBay is generally my first choice. It's fast, easy and price competitive. For buying, I love eBay.

But I just tried to sell a device on eBay, and it was a nightmare. I didn't like the hassle of taking photos, writing up a description, filling out forms, monitoring the auction for 7 days, dealing with PayPal problems, and answering buyers' questions. Without going into the details, I spent numerous hours trying to conclude this transaction with a difficult buyer, and PayPal didn't make it any easier by putting a 21 day hold on the buyer's funds. Ultimately the transaction was canceled.

My uSell experience

In order to evaluate uSell, I decided to sell an iPad on uSell's website. The process was effortless. It took me less than 2 minutes to conclude the transaction. I was offered a fair price. No photos or descriptions were needed, and I didn't have to monitor the auction process or answer buyers' questions. It was so simple.

I especially appreciated the fact that uSell sent me a postage-paid shipping kit so I didn't have to deal with packaging or postage. Selling a device on the uSell website was actually a pleasant experience. In my opinion, when it comes to selling devices, uSell's business model is far superior to eBay's. I will be a repeat customer.

But I am not the only happy customer. I went to resellerratings.com and uSell had over 1300 reviews, with an average rating of 8.7 out of 10. Resellerratings.com is Google's trusted third-party review site, and in my opinion it's the best rating site.

From my experience it became apparent that uSell puts a lot of emphasis on customer service, which is key in the online environment. For myself, it's gotten to the point where customer service is a prime factor when choosing between products that I buy.

If you're considering investing in uSell, visit the company's website

USell is a relatively new company, so not many people are aware of the advantages of selling through this website. But that will change. I am not the only person frustrated with trying to sell on eBay, and as awareness spreads, I expect uSell to continue to take market share from eBay. If you're thinking about becoming an investor, I highly recommend going to uSell's website.

Interview with uSell founder and CEO Daniel Brauser

I wanted to learn all I could about the company, so I initiated a series of conference calls with founder and CEO Daniel Brauser. Following are excerpts from those interviews:

Q: How did you come up with the idea for uSell?

Daniel Brauser: Individuals find eBay a really easy way to buy products, but selling products has become extremely cumbersome. The reason for this is that eBay has geared its business towards professional sellers, or “power sellers”, so that they can control the quality of the buying experience. We saw that this created a major void in the market and developed our model around the concept of providing an alternative for sellers: we offer the "Sell It Now" option, much like eBay provides the "Buy It Now" option. We are providing the same instant gratification experience for sellers that buyers receive on eBay. Additionally, since not a lot of individuals are selling products on marketplaces like eBay and Amazon,  power sellers that focus on selling used products have found it increasingly difficult to find enough inventory. We provide a solution by offering these merchants a way to source inventory directly from consumers.

Q: Can you please elaborate?

Daniel Brauser: Many of the merchants that buy in bulk through our platform are also eBay power sellers. So we're really solving two problems, we are making the selling process easier for individuals, and we are providing inventory to professional sellers.

Q: What kind of feedback are you getting from customers?

Daniel Brauser: Customers praise the speed of the service, ease-of-use, and the price they're able to sell their devices for. The fact that we offer a marketplace where buyers compete to buy devices really helps our customers maximize value. We also take all the risk out of the transaction for the consumer, because we only deal with reputable buyers. Problems can always arise; however, if a customer has an issue, we step in to mediate the transaction. If a buyer has a history of complaints, we cut them off. In the last six months we have cut off  four buyers, but not a single one has left voluntarily.

Q: Do you have any other competitors other than eBay?

Daniel Brauser: Our other major competitor is a VC backed company called Gazelle.com. But in one sense we don't really consider them competitors because Gazelle is a direct buyer of goods. Not only do they have to market their service to consumers, but they also receive and inspect devices, pay customers, package devices for resale, and then sell through either retail or wholesale channels. uSell, rather, is a marketplace. We leverage the power of the marketplace and control the experience by tying the different pieces of the value chain together with technology

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Disclosure: I am long uSell. For complete disclosure and disclaimer information please click more

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Comments

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Harry Sinclair 5 years ago Member's comment

For those of you who have had their eye on this stock since John Ford published this article, take note of an encouraging update here: www.talkmarkets.com/.../usell-renewed-growth-model-provides-a-probable-100-return-opportunity

George Lipton 5 years ago Member's comment

Thanks. Anything more recent? Hard to find any good current coverage on this stock.

Mike Nolan 6 years ago Member's comment

Any more news on any sort of acquisition yet? I've been itching to buy this stock but that would really cinch the deal.

John H. Ford 6 years ago Author's comment

Mike, I haven't heard anything.

Susan Miller 6 years ago Member's comment

Too bad. Thanks for tipping me off to this stock anyway. Sounds like there is some value even without an acquisition.

Mike 6 years ago Member's comment
Although the process of selling on sites like Usell might be easier and less hassle, you get far more by selling your phone on ebay. I just did a price comparison of the iphone 5s 16gb, and usell offers a price of $260, while they sell on ebay all day long for over $100 more at $360. I am in the UK and this space is already very crowded, exactly the same concept as usell.
John H. Ford 6 years ago Author's comment
Mike. You're absolutely right, you can get more on eBay, but when you subtract eBay's and PayPal's commissions, postage and packaging, the profit factor diminishes. When you look at uSells 40% year-over-year growth, and the 70% month over month increase in orders placed, you can see that a lot of consumers are choosing the easier approach with uSell, rather than going through the hassle of dealing with eBay. I've done it both ways, and I will continue to sell items on uSell.
Mike Nolan 6 years ago Member's comment
I agree with your analysis that uSell would be an ideal acquisition target for eBay. That would of course be the holy grail for uSell shareholders. But realistically speaking, has there actually been any chatter about this even being a remote possibility? Though I do think uSell is undervalued regardless.
John H. Ford 6 years ago Author's comment
Mike. I have not heard any rumors of a buyout, this is pure speculation on my part. My investment in uSell is not based on whether or not a buyout happens, it's based entirely on a great business model, extreme undervaluation, and strong fundamentals.
Susan Miller 6 years ago Member's comment
Well, you've certainly piqued my interest. This stock was not even on my radar but I'm following it now. You make some excellent points.
John H. Ford 6 years ago Author's comment
Try googling "sell my iPhone" and you will see that uSell and Gazelle come up on top. Since uSell generally pays the highest price, the company should ultimately prevail.
Chris Kisnik 6 years ago Member's comment
sounds like a hidden gem!
Bill Lex 6 years ago Member's comment
Not only USell is doing this, there are tons of others in this as well. How is Usell going to stand out?
John H. Ford 6 years ago Author's comment
Bill Try googling "sell my iPhone" and you will see that uSell and Gazelle come up on top. There are some other marginal sites, but they are kludgy and do not inspire confidence. Since uSell generally pays the highest price, uSell should ultimately prevail. Consumers will figure out fairly quickly were they can get the highest price.