Description

Idea

Long ACV Auctions, the pioneer in digital wholesale auctioning providing dealers with a platform to buy and sell used vehicles online. The traditional wholesale auction market – dominated by Manheim and ADESA – is costly and inefficient for dealers looking to maximize unit profitability. ACV’s inspection process and volume scale allows dealers across the country to buy and sell units at the best possible price knowing that they are getting exactly what they paid for. Further, as dealer density increases in territories that ACV operates in, we expect 40%+ unit-level EBIT margins.

Variant View

• We believe consensus is directionally accurate on the trend of digital adoption of dealer wholesale auctions but misses the boat on the potential market share and unit economics for ACV.

• The market’s emphasis on short term market share gains from incumbent dealers like KAR Auction Services fails to account for ACV’s technology and inspection investments which sets them apart and allows them to maintain share.

• Due to these mispricings, we underwrite a 22% 10-Year IRR in our base case (40% market share, $180 EBIT per unit) or 152% upside.

Introduction to Wholesale Vehicle Auctioning

The wholesale vehicle market is large and complex with annual volume of approximately 21.2 mm units split between the dealer-to-dealer (D2D) market (13.2mm annual units) and the wholesale consignment market (8mm annual units).

D2D unit volume largely consists of units from the 16.5k franchise dealers who receive trade-ins from consumers that do not fit with the dealership’s inventory. Therefore, the D2D market allows these franchise dealers to sell their unwanted inventory to a larger network of 38k independent dealers where the vehicles might be a better fit for their dealerships.

Currently, only 5mm out of the 14mm annual D2D units are sold at physical auctions. The physical auction market is primarily controlled by ADESA and Manheim, who handle 75% of annual volume. The remaining 9mm units are sold through local dealer networks and other third-party offerings. Online platforms control only about 10% of dealer wholesale vehicles, which is a large focal point of this pitch.

The wholesale commercial consignment market consists of off lease, repossessed, rental, and factory vehicles. Off lease (4.1mm units) consist of vehicles that are sent to independent dealers after a vehicle’s lease term ends. Repossessed vehicles (2.1mm units) are collected by lenders and banks from people who missed payments on said vehicle. Rental vehicles (1.2mm units) come from large consumer and commercial rental fleet companies who wish to get rid of older inventory. Finally, factory vehicles (700k units) are vehicles from OEMs that are sent directly to wholesale auctions.

A large portion of off lease vehicles (approximately 2mm units) are currently auctioned on KAR’s OPENLANE platform (75% share of off lease). Additionally, many repossessed and rental fleet vehicles go through reconditioning processes, which we estimate to make up 1.5mm units. The remaining vehicles all go through traditional physical auctions.

A rough outline of wholesale volume distribution is shown below:

Business Overview

ACV Auctions (“ACV” or “the Company”) manages an online auction marketplace that allows dealers to buy and sell wholesale vehicles with ease. Since ACV auctioned it’s first vehicle in 2015, the Company has facilitated the exchange of over 1.3mm vehicles. ACV makes money by collecting fees on every transaction and additional ancillary services that dealers decide to purchase. A typical auction process goes as follows:

A vehicle is set to be auctioned off at a predetermined time. Before the auction, potential buyers can look through the vehicle’s conditions report and quality inspection tools collected by ACV. Sellers can set a floor price as the minimum they would like for the sale to go through. After inspecting the vehicle, a 20-minute auction process begins. Dealers bid on the vehicle and the sale goes through if the price is above the floor price.

From here, ACV collects a flat sellers fee ($150) and a variable buyers fee ($50-$350 depending on final price). The buying dealer can then decide to either transport the vehicle themselves or outsource delivery to ACV for a variable fee of $200-$800 depending on the total distance traveled.

Additionally, ACV provides various ancillary services to customers such as finance and data services which are discussed herein.

Thesis Point 1): the market is shifting towards online wholesale due to the better offering for buyers and sellers 

Traditional model

The traditional in-person wholesale vehicle auction model is structurally inferior to the digital model. Dealers attend auctions because they receive trade-ins and additional inventory from car buyers that they want to get rid of and to buy vehicles that better fit their customer demand and have a larger chance of selling at their dealership. These in-person auctions require dealers to travel to local auction houses while transporting their inventory (which is very expensive). At the auction houses, cars are quickly displayed for just a few minutes at a time. During these auctions, buyers need to quickly determine a fair price for the vehicle and make a bid. We identify the following as the primary issues with this model in order of importance.

Cost: the fee structure of the traditional model involves an upfront ~$150 auction run fee for dealers attempting to sell their vehicle in addition to ~$100 in transportation fees to bring a vehicle to an auction site. Further, if the vehicle is sold, the dealer must pay an additional $250-$300 fee to the auction house. All in, this can drive the total cost of selling a vehicle to $500-$550.

Transparency: buying a used car from another dealer presents itself with a significant amount of information asymmetry. When a car is on display at an auction house, buyers have little information regarding the problems and defects that a vehicle might have. Oftentimes, there are problems that dealers identify in vehicles later on that are not assurance guaranteed. This means that the buying dealer can take losses of hundreds of dollars from what they paid and what they can sell for.

Selection: every auction house operates as a discrete unit limited to a repeating set of dealers. This results in a constrained set of inventories as well as a smaller set of potential buyers.

Convenience: auction houses are only open for one or two days a week. If a dealer plans on changing any of its inventory at all in a specific week, they need to clear up their calendar and go to the auction house on those specific days and bid/sell.

ACV Auctions Offering

We believe that the digital model – which has been pioneered by ACV Auctions – is clearly the superior value proposition and solves all the issues related to in-person auctions. We will describe the solutions in the context of what ACV offers although BacklotCars and TradeRev provide similar functionality.

Cost: the largest cost advantage in favor of online auctions is that a vehicle does not leave a dealership until a purchase is completed. Instead, an ACV inspector will go to the dealership to complete a 30 minute under the hood inspection of the vehicle. After collecting all the necessary vehicle information, a vehicle can be listed. There is no upfront cost to the dealer until the vehicle is sold. For the seller, this means that a) there is no $100 transportation cost, and b) there is no risk of paying the $150 run fee that could end up with no vehicle.

Transparency: as mentioned previously, before any car is allowed to be auctioned, the vehicle needs to go through ACV’s 100 point inspection process conducted by ACV’s crew.

Selection: unlimited selection which is also likely to match the highest bidder.

Convenience: online auctions can be run 24/7/365, which dealers love.

Downside of Digital Auctions

The largest problem with the digital offering is that it is extremely foreign to car dealers. The concept of buying a car without first seeing it and deciding for themselves whether it is worth thousands of dollars is foreign to many dealers.

However, due to the increased prevalence of offerings like Carvana that create price transparency for used car buyers, dealer margins are slowly declining. According to Guggenheim estimates, this has translated into dealer gross profit per unit declining from ~$1.8k in 2013 to ~1.5k in 2019. The increases in used car prices do not result in direct gross profit increases for dealers because the purchasing price at auctions has increased as well. Therefore, the best way to increase margins would be by reducing the cost and fees of auctions. Luckily for dealers, digital auctions can save them ~$300 per vehicle, bringing their unit gross profit figure back up. Further, the increase in dealer onboarding on ACV is a positive shift towards dealers adopting this model. As more dealers who attend local auctions begin to use the digital offering, the quality of physical auctions will directly decrease.

Digital Penetration

Penetration of digital dealer wholesale auctioning has been on the rise. As a result of the pandemic, there was a large shift towards digital auctioning bringing total volume in North America to 1mm. In 2021, dealers had the option to go back to fully in-person auctions if they pleased, however, we have seen an additional 500k units shift from physical to online. Our view is that in the next 10 years, we will have at least a 70/30 split for online/in-person auctions.

Our VAR supports a complete shift to digital in 7 to 10 years’ time with the largest barrier coming from the old school mindset of dealers:

·       I would say seven to 10 years because you still have people that like to go to the physical auction, the old-school car people that like to touch and feel like are they don't want to do it just on their phone or their laptop. They want to see the car. So you got to weed some of that old school mentality out. And I would say it's seven to 10 years from deleting the physical auction, it's starting to happen right now. – Former Territory Manager at ACV Auctions

Thesis Point 2) ACV will be a dominant player

Although the market is in its early innings of growth, the key players in contention for digital auction market dominance are ACV and KAR Auction Services. Albeit there are other players, we believe that ACV has way too far of a lead over them to truly allow them to catch up and gain meaningful share. Our rough approximations of digital market share per player are below:

From here, we will explain why we believe that ACV will maintain its position of market leadership going forward. We view the largest drivers of a Company’s success in digital auctioning as having a strong and transparent inspection process, reaching the point of scale benefits, and value-add ancillary services. ACV is ahead across all three.

Inspection process

For any marketplace, building trust between buyers and sellers is crucial to scaled success. As previously mentioned, a successful wholesale auction marketplace needs to convince buyers that they have enough information to buy a vehicle that won’t be loaded with defects. Our checks indicate that this is true:

·       “I think probably the most important thing is the accuracy of the condition report. That dictates how much your vehicle is worth obviously. But obviously, it also dictates if I've got to put a bunch of recon into a car that I didn't know about that's going to affect my bottom line.” – General Sales Manager at Rosewood Auto Sales

ACV has developed a unique inspection process that it goes through for all the vehicles that its inspectors examine. The process involves a thorough condition report, an undercarriage virtual lift, and an Audio Motor Profile. The unique benefits of each are explained below:

·       Condition Report: a condition report is created for every vehicle and includes over 100 details covering both cosmetic and structural damages. Inspectors use meters to judge paint quality and reference automotive engineering schematics to identify damages and issues.

·       Virtual Lift: ACV’s mobile virtual lift function allows a dealer to slide a mobile device under a vehicle and get a complete view of the undercarriage of a car in minutes. The imaging results built trust in the platform as dealers have a clear view of what they are purchasing.

·       Audio Motor Profile (AMP): AMP provides buyers with a better-than-in-person view into the engine of a vehicle. With a mobile device and a small hardware add on, inspectors simply record the sound of an engine and can provide buyers with insight into rev cycles, idle periods, and the quality of the engine.

Altogether, these inspection functions are the largest driver of trust between ACV and its sellers. We believe that competitors might have the ability to replicate the conditions report – e.g., optically figure out what is wrong with the vehicle – but cannot offer the same undercarriage and engine inspection quality:

·       ACV’s virtual lift was issued a patent in January 2021 which protects the Company’s ability to capture images of a vehicle’s undercarriage. The method involves mounting a camera, usually from a mobile device to a stand that is connected to a mirror assembly at an angle. This device is then placed under a vehicle while the car is driven over, and the camera is taking multiple pictures of the reflection of the undercarriage.

·       The Company has additional pending patents for its IP that will further solidify its technology lead over KAR.

o    “but like the engine audio, obviously, I feel like that's something that anybody can duplicate and then the undercarriage pictures. I feel like that's something that anybody can duplicate unless there's trademarks. But I just think they've done it first, and they've done it better than some of these other guys, and I think that's what makes them stand out to me.” – General Sales Manager at Rosewood Auto Sales

Based on our checks, we believe that these inspection offerings place ACV above BacklotCars:

·       And I've found that ACV has just been the most consistent. They've got great pictures. They've got like undercarriage pictures and you can see underneath. You can hear the engine, it's just really nice compared to some of the other online platforms. So that's probably the biggest feature. – General Sales Manager at Rosewood Auto Sales

·       “So, like for somebody buying the car, don't you want to see like 50 pictures plus the underbody shot, you want to see everything. So, they're so thorough with that. that, that gains them more market share because they've got more buyers.” – Former Territory Manager at ACV Auctions

There are many problems with the inspection process of competitors:

·        Issues with BacklotCars

o“Backlot doesn't do code readers or paint meters, nor do they take as many photos. Inspections are evolving on there, but I have heard from buyer's experience they don't have a GO GREEN program, so many buyers are stuck with cars, which is not a great buyer experience.”

oQ: “Got it. Is Backlot as good is that [inspection]? A: No, they’re not as good at that”

Scale

Clearly, any dominant marketplace needs to have a scaled offering. There is a clear virtuous cycle associated with ACV’s marketplace: as more buyers join the platform, more sellers are interested in joining since there is a greater likelihood of getting matched with the highest potential bidder. As more sellers join, the platform creates the largest potential selection.

Currently, ACV is by far the most scaled and trusted player in the market. We expect 2021 volume to total 545.6k units with 154.1k of those units coming from gains in digital adoption. We believe that their scale has resulted in tremendous benefits that result in the onboarding of more dealers and the ability for them to retain both buyers and sellers. We view ACV’s unique customer acquisition strategy as the largest driver of their market leadership.

There is a strong hesitancy from dealers to switch over to a digital marketplace when they have spent decades attending the same local auctions. Although the cost and convenience benefits are obvious up front, it is difficult for dealers to trust the quality of buying vehicles online. Therefore, a smart and effective onboarding approach is vitally important.

When ACV enters a new local geography, it adopts a multi-step land and expansion strategy.

First, ACV brings in a marketing team that goes to talk to all the independent dealers in an area (the prospective buyers). The buyers download the ACV application and are shown the inspection process (like the virtual uplift) that gives them confidence in the quality of the vehicles. Buyers are given purchasing incentives like waived fees on their initial purchases which encourage them to stay on the platform for a while as ACV goes to onboard sellers.

After acquiring the potential buyers onto the platform, the second step involves going to all the franchise dealers (the sellers). The largest selling point for the franchise dealers is that ACV already has a buyer base and the money that they will save on transportation fees. There is no harm for sellers because either the vehicle sells, and they make money, or they do not, and they take the car to a physical auction later in the week.

There is one interesting dynamic that ACV must navigate with franchise dealers: the used car director. The used car director is the person in charge of buying and selling vehicles at physical auctions. Their entire job revolves around going to these auction houses a few times a week and helping manage inventory. Sometimes, these dealers are only paid to go to auctions and are not fully on the dealership’s payroll. Said another way, using a platform like ACV Auctions could disintermediate the used car director and result in them losing their job. To combat this, ACV’s managers sometimes need to go directly to the location owners, but eventually they are able to onboard them (and onboard them over competitors):

·        Yes, hands down. We got more money for the car and the dealers really like the 20-minute auction. They don't want to wait around and find out 24 hours whether they sell a car or not. They want instant gratification. So they like the 20-minute auctions. They can tell whether the car sells or not that quick. They don't want to wait 24 hours to know whether they sold some or not. So yes, we would win almost every time against them for sure. – Former Territory Manager at ACV Auctions

There are three primary benefits that the scale advantage translates into:

Sales conversion: ACV’s unit conversion is pegged at approximately 70% compared to physical auctions who reach 35-40% conversion. This makes sense because having the highest number of market participants results in an inherent buyer/seller matching advantage where any vehicle that is being sold is more likely to have a buyer that is interested in purchasing it.

High quality ancillary services: as we will further explain in thesis 3, ACV has invested in various additional product offerings and services that provide further motivation for dealers to use their platform. Although we view these services as being on a secondary level of importance, they result in increased retention and wallet share for their customers.

Barrier against competition: at YE21, ACV Auctions has launched approximately 160 territories. Management claims that this territory footprint covers the entire 54.5k dealer network in the United States. Although very effective before, the ACV customer acquisition strategy does not work as well anymore. When ACV entered its markets, most dealers did not know about digital auctions. ACV will always be the go-to platform for them. Even in markets or dealerships where ACV has not officially

The KAR Ordeal

We believe that the only competitive threat for ACV comes from KAR, which has recently begun an aggressive push into digital. The timeline for KAR goes as follows:

KAR Digital Adoption Timeline:

·       August 2011: KAR acquires OPENLANE to conduct off-lease car transactions online.

·       August 2014: 50% interest acquired in TradeRev for $30 million.

·       October 2017: Remaining 50% interest in TradeRev acquired for $50 million. KAR now owns the entire company.

·       November 2020: KAR acquired BacklotCars.

·       February 2021: KAR shifts all US TradeRev units to BacklotCars

·       October 2021: KAR acquired Carware for $450 million.

The largest concern relating to market share is that BacklotCars ends up taking a significant portion of share due to the significant buyer base that KAR has from its physical auction houses. The market is particularly concerned about the fact that BacklotCars has been gaining significant market share in the past two quarters, and therefore, has a significant chance of taking over as the digital market leader. Below are our rough estimates of ACV vs. KAR’s unit growth and our reasons for recent share gains.

First, we do not believe that BacklotCar’s recent share gains are a result of high-quality service offerings. Rather, the conversion of ADESA’s most loyal customers onto the platform and the conversion from TradeRev’s customers. In early 2021, ACV announced that it would transition all TradeRev US dealers to Backlot’s platform. The reason for this is obvious: one scaled platform with all the buyers and sellers in a geography is more effective for all parties. Based on calls with formers, we estimate that TradeRev auctioned 51k units in the US in 2020. Assuming that all of these customers switched to BacklotCars, BacklotCars gained just over 100k units in 2021. We believe that a large portion of these units are coming from ADESA dealers that are in the same areas of Backlot’s territories.

Second, TradeRev’s lack of success raises red flags as to the potential for BacklotCars to take share. KAR’s initial push into digital D2D was with TradeRev in 2014, when it purchased 50% of the company with the intent of growing digital in the states. For context, TradeRev was, and still is, the leading D2D dealer platform in Canada. Even with KAR’s support infrastructure, we estimate that TradeRev’s US segment auctioned only 111.1k units from 2018 to 2021. All of our checks indicate that KAR’s execution with TradeRev was very poor.

·        “So TradeRev was not doing well in the U.S. It's the #1 player in Canada. It's dominating the market right now. So just to make sure that point is made. But when it was starting, TradeRev did not do well. They [TradeRev] were hovering around 10,000 to 15,000 units per month, maybe around 20,000 at some peak months, but they didn't perform well. ACV was constantly growing per month. They quickly grew to 25,000, and then they grew even faster to 50,000 units per month.” – Former Director of Marketing at TradeRev

Third, KAR is simply behind on all the technological innovations that ACV is implementing. Their recent investor day presentation shows growth initiatives that are basically just copies of already-implemented ACV initiatives.

In sum, we believe that ACV will be the clear market leader within digital D2D wholesale. Although still sub-scale, ACV has entered all 50 states and has established a core buyer and seller network in each.

Although we believe that there is a material chance that ACV controls the entire market, we also notice that many of these vehicle-focused markets maintain an oligopoly structure. Copart and IAA control 45% and 35% of volume in the salvage market and the traditional auction marketplace became 70% controlled by ADESA and Manheim.

We see ACV Auctions having at least 40% market share in 2031, with over 3.3mm annual unit volume.

Thesis Point 3) ACV has attractive unit economics at scale

ACV’s economics are attractive at scale due to long term potential in gross profit per unit and fixed cost leverage from its dealer territories and overhead.

Gross profit per unit

Through all its offerings – auctioning, transportation, ancillary value-add services – ACV either earns a flat or variable fee, which makes up the Company’s total revenue. As ACV deepens its relationship with dealers, the propensity to spend on additional services increases, and therefore, the attach rates increase. Altogether, this creates a high revenue per unit opportunity (>$700). Additionally, higher attach rates and increased density in specific geographies allows ACV to spread these unit costs across more units, yielding higher gross profit per unit figures.

·       Marketplace auctioning

o   For every unit that goes through ACV’s marketplace, the Company earns a flat fee from sellers (usually $100) in addition to a variable fee from the buyer (recent price increase).

o   Obviously, with this being the core product, the attach rate is 100%.

o   The marketplace business is currently a 87.4% gross margin business. We expect approximately 50bps of annual gross margin improvement, bringing the figure to 92.4% in 2031.

·       Transportation services

o   ACV’s transportation services provide vehicle delivery services for buyers. After purchasing a vehicle, buyers automatically receive a quote on transportation fees (around $400, but dependent on distance).

o   Throughout the last few years, ACV has been purposefully underpricing transportation services to encourage more dealers to join the platform. We have seen this translate into higher adoption. The attach rate in 2020 was 37.3% and has been materially increasing: based on management commentary, transported units have increased from 41.4k units in 3Q20 (35% attach rate) to 70.4% units in 3Q21 (50% attach rate).

o   ACV has finally reached an inflection point in transportation. Before 3Q21, ACV was losing money on the segment and now we believe it is net positive.

§  Overhead has materially increased: when we went public, we only had a few people on the tech team devoted to Transport. At least we now have over a dozen. So we just in full -- you've seen us be very transparent. We've been hiring, scaling our tech. We're now somewhere around 300-plus people in our product and tech organization across the board. So we've got the resources. We've got more resources we're hiring. You're seeing us plan in Q4 additional tech resources, right? You're seeing us lean in. We're doing a great job of expanding that team.” – CEO George Chamoun 3Q21 Earnings Call

§  Transport margins are inflecting as bulk discounts in carrier and increased density of transported vehicles rewards ACV with attractive contracts:

·        “And Transport is one of those areas that's starting to benefit. And we're just releasing some of these products. And it will help not only turn this into a profitable business but also just as important is great KPIs for our dealers, right, where they're getting the cars faster. We're starting to get more scale.” – CEO George Chamoun 3Q21 Earnings Call

·        “Carriers are saying great things about ACV. You've got carriers around the country, who their whole job right now is just fulfilling cars in ACV. Entrepreneurs across the country, that's literally how they make all their money.” – CEO George Chamoun 3Q21 Earnings Call

o   Originally, management planned on reaching 50% transportation attach rates by the end of 2023. However, expectations have been absolutely blown throughout the last year. We believe that in a decade’s time, with increased scale benefits with carriers, ACV should be able to reach a 75% attach rate at a 15% gross margin.

·       Floorplan financing services

o   ACV launched its vehicle financing segment, ACV Capital, which provides inventory-secured capital to dealers to purchase vehicles. Loan lengths are typically 60-90 days because payback happens once the dealer sells the vehicle.

o   The segment has been quickly growing from approximately 1% of revenue in 2020 (90%+ gross margin). Recent management commentary shows a MSD attach rate with loan volume growing 30% quarter to quarter.

o   Attach rates for ACV Capital should reach at least 25% by 2031. KAR’s AFC segment (comparable although lower margin) has reached a 50% attach rate over the years, and we see no reason that ACV should reach anything lower. We will underwrite a 25% estimate due to the segment currently being small, but see this as very conservative.

§ 

·       Data services

o   ACV provides in-depth vehicle inspection reports (True360) in addition to its inclusive vehicle condition reports. These reports are sold for approximately $300 each and contribute $3.6mm of gross profit at a ~25% margin in 2020.

o   The Company continues to invest in additional services and platforms for dealers to use for vehicle inspection, acquisition, etc.

o   We believe that True360 reports can grow significantly because use-cases for these reports stem beyond only wholesale. For any consumer looking to purchase vehicles, in-depth insights into a vehicle can be useful.

o   We see data services revenue increasing to $400mm by 2031 with a 40% gross margin.

·       Assurance offering

o   Go Green is ACV’s seller assurance offering for sellers. If there is a defect or problem that ACV fails to identify in its initial condition report, and a buyer comes back identifying it, ACV will cover the losses. The offering is sold for $100 per unit and has an 85% attach rate. We expect no changes here going forward.

Below are our figures for what gross profit per unit will look like throughout the next 10 years.

Operating leverage

To attract more dealers onto its platform, ACV has expanded to over 160 territories – this is enough to cover transactions across the entire country.

ACV’s true unit economics are currently being obfuscated by the ~90 territories that are not making money. When ACV enters a new territory, unit-level expenses total ~260% of the initial year’s revenue. Based on disclosed cohort data, we estimate that in the first year of operation in a territory, ACV earns 300-500k of revenue (variance is based on initial dealership density) implied from our inception year units calculation and $300 per unit in revenue. We estimate gross margins to be 80% for these cohorts. S-1 disclosure here claimed that auction revenue consisted of auction and customer assurance revenue, so it should be around the 85% FY20 marketplace gross margin figure. Additional disclosure in the S-1 shows that, in the first year, total auction expense accounts for 258-265% of revenue. Given scale advantages, more recent territories grow more quickly. Therefore, we estimate initial territory operating costs of $800k to $1.3mm.

Keeping similar gross margin assumptions, we see significant opex scale in mature territories. Using the disclosed cohorts as a proxy, incremental opex on new units auctioned through ACV is approximately $51 per unit. Assuming that ACV adds 50 units over the next 10 years to cover any excess volume in the US, we assume a mature unit will handle 16k units per year. Management commentary seems to suggest that this is reasonable:

“So I appreciate the question. We're hiring, I believe, across, if not all, the majority of our territories. None of our territories are fully mature. We're -- we still -- we've got a ways to go in hiring even in the territories that have been operational for 5 years and we're selling a lot of cars -- in some of these markets, we're the #1 provider in the dealer-to-dealer channel.” – 1Q21 Earnings Call

Altogether, we believe that mature territories will generate $2.46mm in EBIT at a 44% margin:

Valuation

In a decade’s time, we believe that ACV will be the clear leader in digital wholesale auctioning with 3.4mm annual units. With mature attach rates in all ancillary segments, gross profit per unit should achieve ~$420 per unit and over a 50% margin.

With Operations and SG&A expenses decreasing with scale, we get to $602.3mm in EBIT by 2030. Capitalizing this at a 20x exit multiple (we view this as conversative with marketplace peers trading as high as 30x today) gets us to a value of $44.85 per share or 152% upside.

Risks

We view the primary risk being increased competition from either KAR or Manheim. Although we are conversative with our assumption of 40% share, leaving room for other players.

Catalyst

Consistent growth in digital adoption and market share gains

Territory level margin expansion