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2Q25 (Calendar 4Q24) Business Commentary.
Copart reported another strong quarter, showing progress on their international efforts while continuing to (somehow) further entrench their dominance in the U.S. market.
Copart’s service revenues increased +15% y/y and vehicle sales increased +9% y/y.
We prefer to look at Copart on an adjusted net revenue basis because of the distortions the vehicles sales line item brings. As a reminder, this is because they sometime purchase vehicles and resell them (primarily in their international operations as they are proving out a market). This creates a large revenue impact because the full sale price of the vehicle is recorded as revenue instead of just the commission, as is with their “service revenue”. Our adjusted net revenue figure takes their total revenues and nets it against vehicle COGS for a better comparison of the economics of their transactions.
Adjusted net revenues were +16% y/y, bringing them to a touch over $1bn for the quarter. This is about the same growth rate as last quarter and in line with their past ~5 year growth rate and slightly higher than their 10 year CAGR.
Copart continues to benefit from several trends: 1) rising total loss frequency, 2) a slight shift towards higher quality cars, and 3) international markets moving to a consignment model, shaped by Copart’s entrance.
Total loss frequency has been increasing because repair costs have been ballooning as vehicle complexity grows. The more wiring, sensors, and “smart” parts means that even a small accident can require replacing a lot of delicate technology and a computer system reset. Whereas fixing a bumper used to be a simple a plopping off the old one and throwing on a new one, now a bumper may have a dozen sensors that are all intricately wired deep into the vehicle.
The increase in repair cost means insurance companies are more likely to total a car, rather than pay to repair it. The insurance company’s decision to total a vehicle is simply the outcome of the equation below. If the cost to repair the vehicle is more than the cost to buy a similar vehicle less the proceeds they get for the damaged one, they total it.
Their willingness to total vehicles is also supported by the fact that it generally leads to higher customer satisfaction as a badly damaged car is usually never the same as it was pre-accident. The offset of insurance companies being far more ready to total vehicles is higher auto premiums, which means the insurance company is generally indifferent to the rate of cars totaled.
The other aspect of this is that access to international markets has only grown recently and….
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*At the time of this writing, one or more contributors to this report has a position in CPRT. Furthermore, accounts one or more contributors advise on may also have a position in CPRT. This may change without notice.
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