Monday, September 18, 2006

Industry analysts say online auctioneer Liquidity Services’ recent investments put it on course to steady growth from its business of selling surplus goods for corporations and government agencies.

Liquidity Services is scheduled to close next month on its $8.5 million acquisition of wholesale supplier STR Inc., which will help it broaden beyond its concentration on Defense Department surplus and more into the retail market.

The STR acquisition is the latest of several fast-paced investments by the District-based business-to-business company.

In July, Liquidity Services announced it was opening online auctions for European corporations and government agencies to sell their surplus goods on the international market as European legislatures pressured their agencies to operate efficiently.

STR resells overstocked items and products returned by customers to wholesale buyers and discount retail stores, some of them Fortune 500 companies. Typically, the goods include clothing, consumer electronics, retail merchandise, technology hardware and salvage vehicles.

“We believe that the acquisition of STR is a natural complement to our organization,” said Bill Angrick, Liquidity Services’ chief executive officer. “In addition, the acquisition will expand [Liquidity Services’] presence on the West Coast through the addition of an approximately 117,000-square-foot leased distribution center in Southern California.”

Stock research analyst Stephen Ju of financial firm RBC Capital Markets said the STR acquisition continues Liquidity Services’ growth strategy, which doubled its net income in the second quarter of this year.

Wall Street research analyst Paul Keung of CIBC World Markets said, “We believe the strength in commercial business should enable the company to diversify its revenue sources away from the Department of Defense business as well as grow revenues at high rates.”

He also said Liquidity Services “has pricing power and potential scale benefits while growth of its reverse supply chain network may accelerate in the face of a slowing economy.”

The company reported income of $2.4 million, or 8 cents per diluted share, on revenue of $38.7 million in the second quarter of 2006. The company earned $1 million, or 4 cents per diluted share, on revenue of $22.9 million one year earlier.

Its stock closed at $15.14 yesterday on the Nasdaq Stock Market, down 5.1 percent or 81 cents compared with Friday’s close.

The company was founded in 1999 and operates with about 350 employees.

It was one of the first to try to draw together the highly fragmented $40 billion worth of corporate and government surplus and salvage products into a single online auction market.

The company has found that the more surplus, salvage and wholesale items it sells, the more it can attract buyers.

“We have attracted over 489,000 registered professional buyers,” Mr. Angrick said.

They keep coming back because the online sales allow customers to sell merchandise “at higher values and with less costs” than selling them by themselves, he said.

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