October 4, 2020 | 11:43 AM by Jay Kunstman | jkunstman@jaguaranalytics.com

Liquidity Services (LQDT) – Your Surplus Solution

Liquidity Services (LQDT) is a leading online reverse supply chain marketplace for selling surplus and salvage items that span more than 500 product categories providing professional buyers with a large aggregated marketplace for buying goods. They have over $8B in completed transactions, more than 3.6 million registered buyers, and their reach extends to almost 200 countries and territories.

An example would be a customer purchasing an item from Wal-Mart (WMT) and returning it several days later. Wal-Mart makes the decision not to put it back on the shelf. Rather, the product makes its ways to a LQDT distribution center where the team inspects and tests the product and ultimately re-sells its through Amazon (AMZN).

Besides Amazon, the company’s list of sellers includes some well-known names such as The Home Depot (HD), PepsiCo (PEP), Boeing (BA), Sony (SNE), Procter & Gamble (PG), Merck (MRK), Lockheed Martin (LMT).

The company operates a number of websites, which include:

GovDeals.com – Provides services to government agencies allowing them to sell surplus assets
Secondipity.com – Have access to returned and excess inventory from top consumer brands
AllSurplus.com – Leading marketplace for business surplus
Liquidation.com – Enables buyers to purchase consumer product goods and commercial surplus
Machinio.com – Global platform for buying and selling machinery and equipment

**Note that on September 15th, GovDeals.com closed on the sale of its two-millionth item through its online auction platform.

CEO William Angrick recently stated, “Without question, the investments we have made the past few years in our online marketplace platform and technology infrastructure have positioned liquidity services extremely well to meet the needs of customers in a post-pandemic world. Sellers and buyers are largely seeking efficient, no contact digital solutions that are stable, reliable and scalable. We are increasing our market share as sellers embrace our technology and services that result in strong execution, safety, and convenience. In this context, retailers, manufacturers, and government agencies embraced our safe and proven solutions to conduct commerce during Q and foreshadows the essential role liquidity services will have in the evolving economy and ecommerce space. We are fielding more inbound inquiries across all of our segments because of our unique capabilities.”

The company’s third quarter performance showed improving top line trends as the quarter unfolded from the lows in April as business and governments began to reopen. Here was the breakdown:

-EPS of $0.05 vs ($0.15) estimate – Beat
-Revenue of $47.7M vs $40.65M estimate – Beat
-Retail GMV increased 14% Y/Y
-CAG GMV decreased 18% Y/Y
-Machinio Revenue increased 23% Y/Y

Some other highlights from the conference call included management discussing the enhancements it had made to the allsurplus.com marketplace by adding new self-service features. “Compared to Q2 of this year, our increased promotion of AllSurplus has resulted in a 148% increase in buyer registrations, a 119% increase in traffic, a 161% increase in unique bidders, and a 65% increase in direct transactions on the AllSurplus marketplace.”

Also, as mentioned above, its Machinio segment revenue increased 23% Y/Y, driven by cost-effective lead generation solutions for equipment sellers, many of whom were small business customers looking to stretch their marketing budgets in an uncertain economic environment.

Channel Checks

Last week, on September 29th, Robert W. Baird analyst Colin Sebastian was out with a note saying that their tracking of LSI sites shows decent improvement and greater stability in auction activity since the last update in early August.

“We track weekly listing activity on LSI websites Allsurplus.com, Liquidation.com, and Govdeals.com in order to gauge auction activity. Our recent analysis indicates that Govdeals listings grew by more than 50% quarter/quarter (see Figure 1.) Moreover, Liquidation.com and Allsurplus.com also show sequential increases in auctions month/month, which maybe more indicative of a counter-cyclical benefit from the current macro environment.”

They would raise their quarterly revenue and EPS estimate for Q4 to $57.3M vs $0.06, up from $54.3M and $0.05, respectively. Overall, they recommend that investors keep an eye on LSI given the potential for accelerating online liquidation volumes in a prolonged macro downturn.

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