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every year, the release of a new iphone will set off a global wave of phone replacement, which is not only a grand event for apple fans, but also brings significant market opportunities to the second-hand recycling industry. as new iphones are gradually launched, consumers are considering how to deal with their old devices, and the second-hand recycling industry has ushered in the busiest period of the year.

image credit: apple

unlike the practice of "letting old phones rot in drawers" ten years ago, the shorter replacement cycle, higher purchase costs and more developed second-hand trading industry have made the topic of "trading old phones for new ones" more and more common. whether the old phones can be handled safely and properly, and whether the second-hand value of the old phones can be maximized, have become the two most concerned issues for consumers when dealing with old phones.

recycling channels are diversified, and "trade-in" is becoming more and more popular

generally speaking, in addition to the internal consumption solution of "giving it to family members", the second-hand recycling of smartphones is usually divided into three channels:

1. trade in old mobile phone brands;

2. second-hand trading website;

3. second-hand recycling platform.

the trade-in program of mobile phone brands is usually the most convenient option. this program is directly provided by major mobile phone manufacturers. consumers only need to follow the instructions to appraise the old model and deduct the price of the new phone when purchasing a new phone. taking apple's trade-in program as an example, users can operate it in the apple store online or offline: enter the model and status of the old phone, and the system will automatically calculate a discount amount, which can be directly used to deduct the cost of the new phone.

in addition to apple, domestic mobile phone brands such as xiaomi and huawei also provide recycling services. but according to xiao lei's experience, the inspection standards for these brands to recycle old phones are usually stricter than those implemented in apple stores. even if the standards are the same, apple stores usually "turn a blind eye" to small scratches on the screen and body.

second-hand trading websites are relatively familiar. because there are no middlemen to make a profit from the price difference, second-hand trading websites such as xianyu are usually the platforms with the highest value retention rate of old mobile phones. however, because second-hand platforms are direct transactions between users, this not only tests the bargaining ability of both buyers and sellers, but also is the least secure.

image source: new life

the third method is one of the most popular ways to deal with old mobile phones. there are also various recycling channels, including aihuishou, zhuanzhuan, and shanhuishou. consumers use the app to estimate the value of their mobile phones, and the platform will pick up the phone at their doorstep. after checking the phone, they will pay the recycling fee on the spot. some platforms will also set up offline outlets to provide on-site valuation and recycling services.

going public does not necessarily mean you will become bigger and stronger

in addition to the toc recycling business that directly connects with users, many recycling platforms also provide tob second-hand recycling services for mobile phone brands and e-commerce platforms. for example, the apple store replacement program and jd.com's trade-in program are actually all provided by aihuishou. backed by jd.com's massive recycling demand, wanwu xinsheng group (aihuishou) was successfully listed on the new york stock exchange in 2021.

coincidentally, in february 2024, flashback technology (flash recycling), which had received investment from xiaomi, submitted an application to the hong kong stock exchange for listing, but failed to proceed for various reasons; on september 17, 2024, flashback technology submitted an application to the hong kong stock exchange for a "second round". in the application documents, we also see the other side of the "recycling platform".

image source: hong kong stock exchange

for recycling platforms, does “going public” really mean “becoming bigger and stronger”?

according to the listing application documents of flashback technology (flash recycling), its business model can be divided into two parts: recycling and sales. recycling refers to flash recycling as a recycling platform, which recycles idle digital products from individual consumers and enterprises (distributors, retailers, operators). after being processed by flashback technology, the recycled products will enter the sales part and be resold to individuals or merchants through its own platform (flashback youpin) and self-operated stores in third-party e-commerce.

image source: flashback technology

according to the disclosed data, the total value of mobile phones purchased by flashback technology in 2023 (i.e., mobile phones "recycled" by flash recycling) is approximately rmb 985.4 million, of which 85.1% are "trade-in" purchases, and idle purchases and corporate purchases account for 5.7% and 9.2% respectively. in the first half of 2024, the total value of trade-in accounts for 94.4%, while idle recycling and corporate recycling account for only 1.8% and 3.8%. more than 90% of the recycling comes from offline purchases, specifically trade-ins in stores.

but don’t forget that the “purchase” plus “sales” operating model means that the company cannot make profits simply from “recycling”. and flashback technology’s business is highly dependent on cooperation with upstream procurement partners, mainly through these partners’ offline stores and online platforms to obtain second-hand consumer electronic products. if there are problems with the relationship with these partners, it may directly affect the stability of the company’s sales supply chain, thereby causing a significant adverse impact on business operations.

according to relevant documents, the gross profit margin of flashback technology fluctuated during the reporting period, mainly affected by changes in procurement costs and sales prices. due to fierce market competition, the company had to increase commission payments to upstream procurement partners to maintain market share. this increase in costs, coupled with the uncertainty of the macroeconomic environment, has led to huge challenges for the company in improving gross profit margins. in addition, the rapid launch of new mobile phones has also exacerbated cost pressures. these factors have jointly led to a decline in flashback technology's gross profit margin, which has had a negative impact on profitability.

image source: flashback technology

the prospectus shows that flashback technology has continued to record net losses in the past few years, and its net current liabilities and net liabilities have increased year by year. this is mainly due to the company's high investment in operations and procurement to gain market share, as well as redemption liabilities caused by preferred equity. if it cannot improve its cash flow and profitability in the future, listing will not fundamentally solve flashback technology's financial pressure.

in fact, flashback technology is not the only recycling platform facing the same loss challenge. in q2 2024, atrenew reported a loss of approximately rmb 0.19 per share and also faced the problem of continued losses. even the reasons for the losses were highly similar: the second-hand recycling platform market was highly competitive, and atrenew had to invest more resources in marketing and channels, which increased costs. in addition, the procurement cost of second-hand electronic products is also rising, further compressing the overall profit margin.

whether it is aihuishou or shanhuishou, their operating conditions reflect the common shortcomings of the second-hand recycling industry, especially the challenges in supply chain management, market competition, and profitability. how to maintain a healthy financial situation while growing rapidly will be the key to determining the future success of second-hand recycling platforms.

mobile phone recycling is a "slow industry" with a long investment return cycle

second-hand recycling platforms are not without the possibility of success. the prospectus of shanhuihui mentioned that according to data from sullivan, china's second-hand consumer electronics market is expected to grow at a double-digit annual rate in the next few years, becoming one of the world's largest second-hand equipment markets. this means that the market demand for second-hand recycling platforms in china will continue to expand.

secondly, second-hand recycling platforms can improve operational efficiency and reduce costs through more efficient testing, grading, and pricing systems. at the same time, they can also differentiate themselves from the "p2p" second-hand transactions of second-hand trading websites, using the company's machine testing and grading system to endorse second-hand products. in addition, second-hand platforms can also connect with other companies to provide certain after-sales services for purchased second-hand equipment. this can not only improve the speed and accuracy of recycling, but also improve consumers' user experience, thereby enhancing the competitiveness of the platform.