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Liquidity Services: A Case Of An Illusory Network-Type Moat

|Includes:Liquidity Services, Inc. (LQDT)

One of the things that are permanently on my to-do list is to constantly look for companies with a durable competitive advantage (aka "moat") to add to my watch-list or even better to my portfolio if I'm lucky and find one on the cheap.

One company that looked quite promising was Liquidity Services Inc which trades on NASDAQ under the symbol "LQDT". Here what LQDT does as it was reported in its 2013 10-K:

"We operate leading online auction marketplaces for surplus and salvage assets. We enable buyers and sellers to transact in an efficient, online auction environment offering over 500 product categories. Our marketplaces provide professional buyers access to a global, organized supply of surplus and salvage assets presented with customer focused information including digital images and other relevant product information along with services to efficiently complete the transaction. Additionally, we enable our corporate and government sellers to enhance their financial return on excess assets by providing liquid marketplaces and value-added services that integrate sales and marketing, logistics and transaction settlement into a single offering. We organize our products into categories across major industry verticals such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware, energy equipment, industrial capital assets, fleet and transportation equipment, and specialty equipment. Our online auction marketplaces are http://www.liquidation.com, http://www.govliquidation.com, http://www.govdeals.com, http://www.networkintl.com, http://www.truckcenter.com, http://www.secondipity.com, and http://www.go-dove.com."

What essentially LQDT does is being a "market maker" in the surplus & salvage assets market. It makes it easy for big companies that neither have nor want to operate a reverse supply chain for their surplus & salvage assets. LQDT does it for them. It picks up the goods, stores them and makes sure to find a willing buyer to sell them to.

At first glance LQDT seems to benefit from a classic network-type moat. The more asset sellers it serves the more asset buyers it attracts and the more asset buyers it attracts the more asset sellers are attracted to its services. And the virtual cycle goes on and on..

Read the rest of this post at MoatInvesting.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: LQDT