Love recycling submitted a prospectus, surprisingly more profitable than Xiaomi?

The recycling of used cell phones so earn?

How profitable is second-hand cell phone trading? The prospectus submitted by Love Recycling shows that its gross margin is even higher than Xiaomi, but the offline model is too costly, Love Recycling is always in a tight money situation and has been plagued by the problem of “fake goods”.

“No comment” for many years, love recycling or a paper prospectus to sit on the rumors of listing. The prospectus shows that the gross profit margin of love recycling in 2020 is 25.7%, which is much higher than Xiaomi. The “recycling” is originally a very profitable business, but is limited by the asset-intensive model of relying on offline stores, love recycling has been in the state of “not enough money to spend”.

Good time
On May 29, the second-hand consumer electronics trading and service platform Everything New Life Group (Love Recycling new group brand) formally submitted an IPO prospectus to the U.S. Securities and Exchange Commission (SEC), to be listed on the New York Stock Exchange, if the follow-up progresses smoothly, or will become the “Chinese stock ESG (environmental, social and corporate governance ) first stock If it goes well, it may become “the first ESG (environmental, social and corporate governance) stock in China”.

Behind Love Recycle is the burgeoning second-hand e-commerce circuit. With the huge consumer goods inventory market as the soil, and the policy to promote the green recycling economy, the idle economy is getting hotter and hotter, and the second-hand e-commerce is the centralized embodiment of its Internetization.

Especially since last year, under the impact of the epidemic, the second-hand e-commerce ushered in an outbreak, the turnover of the major platforms in succession to improve, but also to obtain the continuous increase of capital. At the same time, the short video giants such as Jitterbug and Racer have also entered the gold, many analyses have pointed out that the future of second-hand e-commerce will grow into a trillion-dollar scale market.

According to MobData Research Institute, the annual transaction value of second-hand idle in China has reached 1254 billion in 2020, and the user of second-hand e-commerce has exceeded 180 million people, and the penetration rate in the idle market has increased to 36%. Also according to the “2020 Annual China Secondhand E-Commerce Market Data Report”, the domestic secondhand e-commerce market size in 2020 was 375.45 billion yuan, up 44.22% year-on-year.

Specifically for the used electronics trading track where Love Recycling is located, according to the CIC report, China’s used 3C electronics are expected to reach 546 million transactions by 2025. Analysis points out that this will also be a hundred billion scale market segment.

Although love recycling choose to impact the capital market at this time can be said to take advantage of the timing, the United States Poshmark and ThredUP and other e-commerce platform listed in the harvest of a lot of favor, but in the U.S. stock market, love recycling there are many “competitor”, and the domestic market more leisure fish and transfer and other strong rivals, coupled with consumer habits have not yet been fully cultivated and complaints are high. But in the U.S. stock market, there are many “competitors”, and the domestic market has strong rivals such as Idlefish and TransUnion.

repeated rumors of listing
Love Recycling is a veteran on the domestic second-hand e-commerce circuit, having built a 3C product recycling C2B model 10 years ago through Love Recycling, while the current largest second-hand e-commerce platforms, Idlefish and Transfer, are 3 and 4 years behind respectively.

In 2013, Love Recycling went offline from online to offline and started laying out stores in supermarkets and shopping centers in major cities. The founder of Love Recycling, Chen Xuefeng, said in an interview that offline stores are an important entrance for Love Recycling to get traffic, and the transformation of the store model is one of the major decisions affecting the fate of Love Recycling.

Through the public statement of Chen Xuefeng and love recovery, there are two reasons why love recovery vigorously lay out offline stores, in addition to building online and offline linkage control system, more importantly, for a low frequency and non-just demand scene such as cell phone recycling, only open stores in supermarkets and shopping centers, in order to improve their own traffic conversion rate.

In order to form a closed-loop business and platform effect in the business model, Love Recycling set up a B2B trading platform in 2018 and merged with Jingdong’s second-hand B2C retail platform Pai Pai in 2019. 2020 In September, Love Recycling brand was upgraded to “Everything New”. In September 2020, the brand was upgraded to “Everything New Life”.

Along the way, Love Recycling has been continuously chased by capital. According to public statistics, from 2011 to the present, Love Recycling has received 8 rounds of financing from well-known investment institutions such as Wuyuan Capital, IFC, Jingdong Group and Tiger Global Fund, totaling more than $1 billion, leading other second-hand e-commerce platforms both in terms of number and amount.

In fact, prior to this prospectus submission, Love Recycling has been rumored to be listed several times. As early as 2016, Love Recycling said it had included listing in A-shares in its planning and schedule. 2018, there was news that Love Recycling would change its listing venue to Hong Kong, China or NASDAQ, but none of the above plans came true, and the brand upgrade in 2020 and the invitation to the original Yunji CFO to join earlier this year were also interpreted as being an acceleration of the IPO process.

Unlike general Internet unicorns that seek to go public after their valuation exceeds $1 billion, Chen Xuefeng has made bold statements that only when the valuation reaches $4 billion to $5 billion will they seek to land on the capital market and “will never bleed to be listed”. The news that Love Recycling’s current valuation has reached this level was also recognized by retail e-commerce industry expert Zhuang Shuai, who told Financial World Weekly, “From the perspective of sales, profitability and equity structure, Love Recycling’s valuation ($4 billion to $5 billion) is not high.”

Anxiety under the glitz and glamour
Of course, what has supported Love Recycling along the way, besides the constant blood transfusion from capital, is more importantly that it operates an extremely profitable business.

According to the information in the prospectus of All Things Newborn, in the past 12 months ended March 31 this year, the platform-wide transaction of used goods mainly consumer electronics exceeded 26.1 million units (excluding Jingdong spare parts warehouse business), up 46.6% year-on-year, and the total GMV was 22.8 billion yuan (excluding Jingdong spare parts warehouse business), up 66.1% year-on-year. the GMV in the first quarter of 2021 was 6.2 billion yuan, up 106.7% year-on-year. year-over-year growth of 106.7%.

Love recycling submitted a prospectus, surprisingly more profitable than Xiaomi?

At the financial level, Everything New Life’s total revenue for the past 12 months was $5.68 billion, up 49.4% year-over-year. 2020 total revenue was $4.858 billion, of which $4.709 billion was generated by the core business, up 38.2% year-over-year. 2021 Q1 revenue was $1.514 billion, up 118.8% year-over-year. In the four quarters from Q2 2020 to Q1 2021, the company’s core business revenue grew at 45.6%, 47.5%, 50.9% and 135.8% year-over-year, respectively.

In addition, Everything Reborn reported a non-GAAP adjusted operating loss of $104 million in 2020 (after excluding a one-time charge of $40 million) and a non-GAAP adjusted operating loss of $33.57 million in Q1 2021, an improvement compared to the loss of $119 million in the same period last year.

At the same time, it is worth noting that data from the Everything Reborn prospectus shows that the company’s overall gross margin for 2020 is 25.7%. By comparison, Xiaomi’s overall gross margin for the first quarter of 2021 was 18.4%, while the smartphone business’s gross margin was only 12.9%, a figure that would have been even lower if not for the reduction in marketing activities due to the lack of cores. This means that the second-hand business is apparently more profitable than the new business, and there are also practitioners in the second-hand cell phone industry who told “Financial World” weekly that “whether high-end or low-end, the gross profit of second-hand cell phone recycling is above 25% on average”.

Given the current valuation of the industry, perhaps Love Recycling is not “bleeding” at this point in the listing, but it cannot be denied that Love Recycling’s money has been in a state of “not enough” due to the asset-heavy model of offline stores.

How costly is the offline model of love recycling? Chen Xuefeng had a simple calculation: the one-time hardware investment of a simple store is 70,000 yuan, and the monthly operating cost of a store is about 30,000 yuan. And according to the prospectus of Everything New Life, as of March 31, 2021, the company has 755 stores and more than 1,500 self-service stations. Even counting only the operating costs of the stores, it would cost more than RMB 270 million a year.

Despite the constant financing, Love Recycling was exposed to funding problems during last year’s epidemic. According to media reports, Love Recycling pushed a “salary concession” system internally, meaning that all employees “gave up” 10%-30% of their salary, while canceling a series of benefits and subsidies such as five insurance and one pension for employees, and requiring employees to work at the company for 12 hours a day on average. Some employees even said on social media that the company’s series of practices “are the rhythm before closing down”.

Although capital is ruthless, Love Recycling has survived the crisis. However, in the opinion of Internet industry analyst Liang Zhenpeng, capital will not keep running with the company, “there is also a need to exit”. He told Financial World Weekly that Love Recycling chose to go public at this time, “the most primary purpose is still financing to get the money to continue the business.”

The anxiety of Everything Reborn goes far beyond the need for funds, as it has been claiming to be the largest trading platform for used 3C electronic products in China, but looking back, a strong rival is also rising up.

Public information shows that, in addition to everything reborn, the active players on this vertical track are recycling treasure, flash recycling, love to change the machine, le recycling and easy machine network. Among them, flash recycling just completed its Series C financing in April. The turn to find a beautiful machine through the merger last year, focusing on 3C electronic field. The entrance of the giant, so love recycling pressure is not small, in September 2020, turn cell phone C2B business daily recycling volume exceeded 11,000 single, the follow-up is more than 15,000 single. In addition, the transfer also set up the main second-hand cell phone B2B trading platform “picking goods man”, the love of recycling constitutes a comprehensive attack of the momentum.

In addition, on the Black Cat platform, there are more than 800 complaints about Love Recycling, mostly around the sale of fake goods, malicious price pressure, private dismantling and overbearing terms. Although this is a common problem in the second-hand trading industry, the analysts told Financial World Weekly that it will definitely affect Love Recycling’s listing process and future share price performance at a time when industry norms are not yet perfect and consumer habits are not yet mature.

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