Copart, Inc. (CPRT)

How it makes money

Most revenue is service fees paid mainly by insurance companies for storage, towing, title handling and running the auction — Copart earns this whether the car sells for little or a lot. A smaller share comes from vehicle sales, where Copart itself buys the car, typically outside the U.S. or under certain insurer contracts, and keeps the sale proceeds rather than just a fee. Fee revenue is the more stable, higher-margin part of the business.

Revenue by segment

Copart's auctions are more valuable to sellers the more registered buyers compete for each car, and more valuable to buyers the more inventory is listed — a flywheel that reinforces itself. On top of that, its nationwide network of owned storage yards took decades to assemble and would be extremely costly and slow for a new entrant to replicate.

The number of total-loss vehicles is fairly steady, tied to accident rates and the rising cost of repairing increasingly complex cars, so unit volume does not swing wildly with the economy. What does move is the value Copart captures per vehicle, which follows used-car prices and scrap metal prices — both of which can be volatile.

Key risks

• Dependence on the insurance industry — The large majority of vehicles Copart handles are assigned by insurance companies; a change in how a major insurer manages total-loss claims, or the loss of a key relationship, would directly hit volume.
• Exposure to used-vehicle and scrap prices — What a wrecked car fetches at auction depends on used-vehicle values and scrap-metal prices, both of which move with markets Copart does not control.
• Catastrophic weather events strain capacity — Hurricanes, floods and hailstorms can flood Copart with tens of thousands of vehicles at once, straining yard space, staff and the cash needed to advance payments to sellers.
• Land and real estate constraints — Growth depends on securing suitable storage land near population centers and clearing local zoning and environmental requirements, a slow and increasingly expensive process.

Copart does not disclose a single dominant customer, but the insurance industry as a whole supplies the large majority of the vehicles it handles, so a shift in how insurers manage total-loss claims would affect the whole business.