Auto1: EU-sed Car Marketplace - [Business Breakdowns, EP.246]

27:24It's increasingly originating the loans and then securitizing them themselves. They recently, as of last year, priced their second consumer ABS loan. This was about a 250 million euro ABS. And there was a huge amount of demand for it. It was sort of three and a half times oversubscribed. And then for the credit listeners on the call, it was priced at only 87 points over Eurobor. So it's actually a very attractive piece of credit and a fairly tightly priced piece of credit. I assume they can book a gain on that sale by bundling those loans together, there's some type of net benefit associated with packaging the risk together.

28:07There is. I think it's more on the cost side. It's a cheaper source of funding for them and enables them to retain more of the economics over time. Let's get into some of the economic differences. I think we've alluded to it a little bit just in terms of the margin profile, merchant, auto hero. However you want to break that down, Walk through the differences. And if you can put some numbers around it, that'd be really helpful. I know we've been dancing around these topics a lot. So AutoOne reports the business in two segments down to the gross profit line. This is Merchant or AutoOne or Retail and AutoHero.

28:45And that split is important because the economics, as you've probably already gathered, are very different. At a high level, Merchant is the fast-turn, capital-efficient clearing engine, I'll call it, of the marketplace. Auto Hero is slower turning, but higher margin retail business. Starting off with Merchant, because it really still is the core of the business by volume, in 2025, Merchant accounted for about 90 % of unit sales through the network, which was just under 750 ,000 vehicles. To give you a sense of price, these vehicles sold for an average of about 8 ,600 euros. On each of these vehicles, AutoOne generated about 700 euros of gross profit per unit or GPU in the company's parlance, which is a gross margin of roughly 11.5-12 % on each vehicle.

29:41That may not sound like a particularly high margin or large GPU at first glance, but the key to understanding the model is the velocity that they can transact that through the system. So as we said previously, merchant inventory turns quickly roughly 30 days on average. So they don't earn a large profit on any one car, but they earn a modest profit on a very large number of cars with that capital recycling roughly 12 times a year through the system. And so if we assume, and this is our estimate, that they make roughly a 5 % EBITDA margin on each vehicle and they turn that inventory about 12 times a year.

30:21The implied return on capital is about 60 % before overheads, which is an attractive business to be in. Also worth noting out from an economics perspective on the merchant side is that they're increasingly attaching that financing to the merchant transactions, the floor plan financing, and this should live both GPU and EBITDA profitability over time above the current economics today. On the retail or the auto hero segment, so in 2025, that was only about 10 % of unit sales growing much faster, but this was about 100 ,000 vehicles. The average price for these vehicles was 17 ,400 euros, which is roughly double that of the merchant side.

31:07And then the gross profit per unit was about 2 ,100 euros. So 3x the merchant GPU. Gross margin slightly higher as well on the retail side, roughly 15%. And so the difference between the two is fairly intuitive. In Auto Hero, the company's capturing more of that retail margin rather than just the wholesale margin selling through to those dealers. But in order to capture more of that spread, it's obviously a lot more operationally intense. There's the refurbishment, photography, quality control, delivery, customer support, and consumer financing. So there's no free lunch in capturing that margin.

31:47I think a major incremental driver from here, particularly on the consumer side, as we touched on, was the financing. As the consumer financing penetration rises, that should support both a higher GPU, but particularly profitability. management has guided to a GPU target on retail of 3000 euros per vehicle, which is about a 30 % uplift from today's level. So I would just wrap that up and say the simplest way to think about it is really that the merchant is the lower margin, but higher velocity business and auto hero is the higher margin, but more operationally intensive one. Yeah, it is very interesting just in terms of you could look at the margins and say, oh, this looks better than the other, but it's capitally intensive when you think about slower velocity.

32:34And I think that's important. And I think you're hammering it home well. When you think about the synergies between the two divisions, why you wouldn't just go one route versus the other route, where do those show up the most? I'm just going to think out loud a little bit. It's going to be the price discovery. It's going to be you can source more. So in theory, you're buying power, buying leverage gets better over time. But when you think about how these two segments work together, What stands out the most in terms of them complementing one another? The way that I would answer this is that it really goes to the competitive advantage of Auto One.

33:09And so like a lot of great companies, the moat is not just driven by one thing. It's a combination of a number. The things that I would call out, the network effects, the scale economies, the proprietary data set that they sit on, and then increasingly the access to institutional funding. Both of these are driven by really that question around the benefit of having both dealers and consumers on the demand side of that network. Drilling into the network effects more specifically, AutoOne is fundamentally a two-sided marketplace. As more dealers join the platform, the liquidity improves and better liquidity means better price discovering, faster clearing for each of these vehicles.

33:56That in turn allows Auto One to bid more competitively for that consumer supply. And then that better supply improves the inventory breadth for both dealers on the Auto One side and then consumers buying through Auto Hero. So the flywheel is fairly straightforward in that respect in that more buyers improves pricing, better pricing attracts more sellers, and more sellers improves the inventory for overall buyers on the platform. Back to the discussion that we had earlier, we'd say that's especially important in a really fragmented market like Europe, where local supply and demand for used vehicles are often very mismatched.

34:33And so, AutoOne isn't just aggregating inventory at a country level. It's providing a pan-European clearing mechanism or clearinghouse of sorts of used vehicles. The second motor scale economies, AutoOne has built real physical infrastructure across Europe. By the end of 2025, it had more than 725 drop-off locations, 153 pickup locations, 150 plus logistics centers, and they also had a network of 300 plus logistics partners. specifically on the retail side they've built 12 large auto hero refurbishment centers and this footprint today is for about 250 000 cars annually a full utilization we'll come back to the discussion around ai it's important because it's not just a digital marketplace auto one has really built the sourcing, transportation, inspection, refurbishment, and delivery network itself.

35:40And having done this at scale, they can improve the speed, they can lower unit costs, and just really reduce overall friction across the system. As with scale economies, the larger that network gets, the harder it is for smaller competitors to match the price or service level. There's also an interesting thing worth calling out on the capital markets dimension to the scale advantage. As they get larger, this improves the price and ease with which they can access financing. Again, it just comes down to their ability to provide this at a lower cost and more convenient basis. The third element to understand is data.

36:20AutoOne's pricing engine is built on almost 6 million used car transactions since inception. This is a proprietary data set. it's built not just on listings data that you might see from a classified, it's actually built on the transaction and ultimate sale price data across the 30 European countries, different channels and vehicle types. And so the practical value of that data is really concrete. It helps Auto One price a specific car based not just on make, model, age, mileage, but on the actual realize price and demand in the different markets, the different cross-border sections that they operate in, seasonal trends, and helps them better understand the residual value risk.

37:04Ultimately, the more transactions that AutoOne processes, the better those decisions should become over time and the more advantage it has. That all makes sense. And I think the framing just in terms of maximizing sources of demand. On the cost side of things, I think what's most important is the gross profit margin per vehicle. Most things are going to get bucketed into that. But just on the overhead costs, because there is operating leverage in this model, and you see that over time, what would be bucketed into the G &A or anything that would be in the overhead side of things? And how much operating leverage really exists in the business?

37:45I'm just curious as you see it come all the way down the income statement and through the various lines of expenses? It's a good question. And it's probably the most topical debate about the business today on what that margin potential and operating leverage of the business looks like over time. For most of its history, Auto One was loss making. It was only in 2024 that they turned their first year of EBITDA profitability. For most of that period up until that point, EBITDA margins sat at about negative three to negative one percent. And this was as the company invested heavily in building out the network infrastructure of the business, the brand, and then later the retail and refurbishment infrastructure, which all sits in the overheads of the business.

38:30In 2024, they did about one and a half percent EBITDA margins. And by 2025, this was closer to 2.5%. So the business has clearly crossed that threshold of profitability and incremental operating leverage. I think the real debate for investors now, which for a period of time was a discussion, was not whether the company can be profitable, but really what that ultimate margin profile looks like. When the company IPO'd in 2021, management spoke to a long-term margin target of 5 % to 9 % EBITDA margin. We see that there's really four main levers for the company to getting there. The first is marketing efficiency.

39:15AutoOne being less than 3 % of the market today is still very underpenetrated of where we think they can get to and where the company thinks they can get to over time. So they're spending heavily on marketing, particularly on the retail side, to build brand awareness and drive growth of the network. The company indicated that that marketing spend peaked in the fourth quarter of last year. So we think there should be increased scope for improving efficiency from here. And there's some really interesting read through and historical data from Carvana where they looked at how those marketing cost curves and marketing efficiency improved over time as the brand becomes more well known and consumers have this great experience with the company.

39:57We Buy Your Car is a pretty good branding name in terms of understanding what you do for consumers. It's always my favorite when you have a very direct branding mechanism like that. So I tip my cap to them, at least on that marketing efficiency. It is. The other interesting thing on the marketing side worth calling out is the company effectively operates three different brands. We buy your car, auto one on the merchant side, and then auto hero on the retail side. We think it's likely and the company has indicated that over time they'll consolidate those into a single brand and that that's likely to be auto hero.

40:35There is a fair degree of consumer awareness that it's ultimately the same company and there's various touch points for consumers who are either selling or buying their car to find their way to the other side of the network. But that should also drive increased efficiency over time, having a single unified brand. The second area of incremental efficiencies is refurbishment and operating efficiency. So they've invested heavily since 2021 to build out these industrialized refurbishment centers. And there's currently fairly significant unused capacity in that network. On our numbers, they're only driving at about 45, 50 % utilization.

41:14So as volumes scale through these centers, we should see meaningful operating leverage through high utilization, better procurement at scale, and then labor productivity. The third thing for understanding margins from here is also financing. That's something which is very differentiated from a consumer experience for the business, but it's also very high margin for AutoOne. And as financing attach increases, it should support high GPU and stronger EBITDA margins over time. And then the fourth, just on overhead costs, is AutoOne runs a very centralized model with almost all of the tech capability and management sitting in Berlin.

41:56And so as the overall business and the network continues to scale, they should see operating leverage on those centralized costs. That all makes sense. And I think at this point, you have gross profit margin, net positive on both sides. You've hit the mark where you're covering your overhead costs. So the operating leverage from here is an interesting one to monitor. And then you have the balance sheet dynamics of capital intensity, inventory turnover. Do they have a target for inventory turnover? I know you mentioned they're doing a lot of upfront investing on the consumer side of things, but Just walk through some of the balance sheet dynamics and what's relevant in that case, because I think it's very important to this story.

42:39The company hasn't guided to a specific turnover days that they're targeting, but that's a number which they're bringing down over time on both the merchant and the retail side as the liquidity of the network improves. The overall balance sheet and capital consideration is, as you've called out, really important to understanding the business. Because Auto One buys those cars onto its balance sheet, it funds that inventory as it moves through the system. If it goes through the Auto Hero channel as they refurbishment, and then obviously as we've touched on, when they finance that ultimate end sale as well.

43:15And so the best way to think about it and the way that the company would articulate it is that it's effectively a large working capital dynamic for the inventory. And so So as AutoOne grows, it needs more capital to fund the vehicles, to fund the inventory moving through the platform. But because these vehicles are short duration assets and they turn relatively quickly, the company funds that with non-recourse debt secured against the car. And so really it's inventory financing, which funds that. And so it's a capital efficient way for them to grow the business. This does impact how you should think about and look at the cashflow statement of the company, because AutoOne is growing quickly, the reported operating cash flow can look weak or negative simply because more of that cash is getting tied up in inventory as they grow.

44:03That doesn't mean that the economics are poor. It just means that the company is growing rapidly. They need to finance that working capital. And then we should see as the business matures that that working capital drag will normalize out and the operating cash flow will come through. That makes a lot of sense. Yeah, I think those two things in terms of operating leverage and that cash conversion inventory turnover feel very relevant, particularly with that big push on the consumer side of things. I think we covered a lot on the moat and competitive advantage that AutoOne has been able to build with the technology over time.

44:39When you think about what growth can actually look like from here, just talk a little bit about the market, how AutoOne grows relative to that market, the different dynamics that will impact the growth outlook in the coming years. This is one of the most interesting things about the business for us. It's very rare to have what we see as an incredibly dominant business still at only 3 % market share of a very large market. Management has spoken about a path towards 10 % market share and they're pretty open about it. And we think it's very fair that there could be meaningful upside to that target over time.

45:20And so I think the important point is not whether that terminal number is exactly 10 % or 12%. it's that auto one is still very early innings in what's a very large fragmented market with a dominant position there are some interesting precedents for where these business models can get to over time from a penetration perspective we buy cars in south africa which is a broadly similar consumer to business model already has market share in the high teens and is targeting 25 % over the next few years. USS in Japan, which operates more of a wholesale auction market, has close to 40 % market share. And so none of these models are exactly identical, but we think they're useful reference points for the potential consolidation and penetration that AutoOne can get to over time.

46:13The growth levers for the company are relatively straightforward. I think first and most importantly is expanding the supply. The company has been investing heavily in expanding that branch network across Europe. So by the end of 2025, they had about 750 drop-off branches. That number was growing about 40 % year on year. So that gives you a sense of how aggressively management is still leaning into the sourcing opportunity. Second is growing the dealer side of the network. The company is increasing both the number of dealers that are buying on the platform, but also the wallet share of those dealers over time.

46:52Dealer growth has actually accelerated over the last 12 months with the number of dealers still growing about 23, 25 % year on year. They're only about 15 % penetrated of the 200 ,000 odd dealers across Europe. So it gives you a sense of the runway still left on the dealer side. Third on auto hero and retail. So as I called out, only about 10 % of the vehicles today are routed through the retail channel. That side is growing much faster than the merchant as they invest in scaling it. And we would expect that mix to rise over time. Fourth and probably most importantly for profitability as well as absolute growth is deepening the finance attachment and monetization.

47:39As that financing penetration rises on both the merchant and the consumer side, AutoOne obviously earns more per vehicle, and this supports higher GPU and better profit conversion. So I think the key point is that they really have multiple levers to grow. There's more supply. There's more dealers. They can increase that dealer wallet share, and they can drive a higher AutoHero mix over time. and ultimately a 3 % market share, there's a long runway ahead. On the competitive set or just competition in the market, it's interesting to hear that their previous biggest competitor exited the market. But one of the dynamics just in terms of dealers, it's interesting because they're customers and now they will also be competitors in some way.

48:27Does that change the dynamic at all? Like, is that a risk? I have a hard time seeing the leverage that an individual dealer would have over Auto One. But I'm just curious about one, competition more broadly, and two, if that changes any of the dynamics. We've had a number of conversations with local European dealers to understand this dynamic. And there's probably two key things that I would call out. First is the Auto Hero business is only at 100 ,000 vehicles today. So it's less than 1 % of overall market share and not really impacting volumes. so it's something that dealers are aware of but really it's not anywhere near an existential threat to their business and then i would say the value proposition that the dealers get from being able to access as we talked about before this pan-european inventory they can deliver it to the dealership that value is far outweighed by the potential risk from auto one eventually taking that share over time.

49:26Going back to the competitive set, we would really bucket it into three groups. Firstly are the local dealers, which we just talked about. Second are the auto classifieds. And then third are the integrated operators like AutoOne. Each competes with AutoOne in a slightly different way, but from our perspective, none really matches the full model. Back on the local dealers quickly. Local dealers do have some advantages. They have the local trust, they have the physical presence, and they often play a natural role in trade-ins, but they do have structural limitations. They don't have that pan-European liquidity pool.

50:07They don't have the continent-wide pricing data. They don't have the two-sided network or cross-border logistics stack. And so they do compete in some local catchments, but they can't really replicate the auto one model at scale. On auto classifieds, they're a different kind of competitor. They primarily compete for discovery. So they obviously give consumers and dealers a place to list inventory, generate leads, and then transact directly in the consumer to consumer market. But that's also the limitation. These classifieds are asset-like marketplaces. They don't solve the inspection, price, transport, or refurbishment problem.

50:50And really, that's where AutoOne is fundamentally different. Their bet is that discovery alone isn't enough and that by fully vertically integrating through that transaction process, they can provide a far better experience to both sides of the network. I'd also highlight there's an important strategic asymmetry here, a counterposition for the fans of Hamilton Helmour on the call. But a classifieds operator could in theory try to move into more direct car buying. Some of them had tried. But doing so requires a complete change in the business model from high margin, capital light lead generation to auto one, which is obviously an operationally difficult balance sheet intensive and much lower margin business.

51:38And so that's a very hard transition to justify economically. and I'd also call out that classifieds are typically country by country and so they also lack Auto One's ability to arbitrage that inventory across borders. Lastly, on the direct integrated competitors, after Kazoo exited the market in 2024, there really aren't any at scale. There's a French listed business, Aramis. It's not a perfect like-for-like comp because it sits within the Stellantis ecosystem. This does give it some advantages in that it gets preferred supply through that, but it also has the issue that it's not an independent marketplace model.

52:21And from a scale and performance perspective, it's a far smaller business and revenue is actually growing backwards in their most recent quarter. So uniquely, our perspective is that there's really no effective competition to auto on across Europe. Yeah. I think local dealers used car salesmen are a stereotype for a reason. Classifieds, there's a 50-50 chance of me either getting a great deal or getting beat up and getting my wallet stolen at the pickup spot. It's just a very obvious consumer opportunity and better consumer experience. And I think you outlined why it's better on a lot of different sides of things.

53:01Execution is not easy, but at least from the value proposition. It's very clear the pain that this solves. I guess getting into some of the risks, because I would tend to agree that not to overstate it, but even from my side of things, I'd try to be unbiased about this. Competition does not feel like a huge risk. What would you say stands out as the biggest risks for the business? There's typically four buckets of risks or four key debates that you'll hear amongst investors. The first is the margin potential, which we've already talked about. The second is funding and balance sheet, which we've also touched on.

53:35The two other ones are inventory risk and then potential disruption risk from AI. And so I'll start with inventory risk, which is particularly topical at the moment with the conflict in Iran and the potential impact that that will have on residual values of ICE vehicles, the growing market share of EVs and battery vehicles generally. And so really what the inventory risk comes down to is auto one owns the car. And so that means if used car prices fall faster than the company can turn that inventory, ultimately margins can come under pressure. Has that happened? Like have there been cycles where that has played out and you have like some glimpse of how much it really threatens the business?

54:20There have been periods, particularly during COVID, of significant price volatility. But I think the key thing to think about and frame the risk is for most of the company's life, that inventory turns within 30 days. And so the percentage change that we're talking about is within that 30-day period. Historically, that hasn't been at a level where that has significantly impacted pricing for the company. I think in the P &L we've talked about, that risk shows up through a lower gross profit per unit. And if price moves are sharp enough, which we haven't seen historically, but there can be potential inventory write-down effects as well.

55:05There are a few mitigants. I mean, we touch on the inventory turns are quick, especially on the merchant side of the business. and the company always has the ability to push more cars into that wholesale channel if it needs to clear stock quickly. Our perspective is as well that Auto One should be better positioned than peers to manage through these periods. They have more data, they have a larger distribution network to move this inventory, but also the ability to arbitrage these cross-border price differences. And so if the inventory isn't moving in a particular region or country, they can then move that elsewhere within the network to mitigate from that risk.

55:44We'd also call out that from a volume perspective, used car volumes and prices historically have held up much better in an economic downturn. They're not as cyclical or economically sensitive as new car sales. It's also worth calling out the potential impact on EVs. This is a real source of discussion amongst investors, our view would be that Auto One's capability is really in pricing and trading these vehicles across Europe. Whether those are ICE or EV, they will still have the best data and network in order to buy and sell these across the continent. There will potentially be some volatility as the increasing share of EVs goes through the system, but we don't see it significantly impacting the value proposition or economics of the business over time.

56:40I think the second point is the debate around AI. This was actually a topic which Christian addressed directly in his 2025 shareholder letter, which I'd encourage your listeners to read. And we agree with the way that he framed the debate. So his first point is physical operations. AI can't vibe code Auto One's physical operating system, the branch network, the logistics or the refurb centers. And Auto One now owns that infrastructure in a way that a new entrant can't replicate overnight, even if they did have the capital. Auto One has built this proprietary data set over 14 years now, almost 6 million transactions.

57:24And that matters because the pricing of used cars isn't just a generic software problem. You really have to have that realized transaction history, the local market liquidity, the routing decisions, and the residual value judgment in order to compete with what they're doing. The third point is liquidity. Obviously, it's a two-sided network. AutoOne has the largest pool of both buyers and sellers. So even if you and I vibe-coded an AutoOne website tomorrow, The classic exchange or marketplace dynamics would obviously provide a competitive advantage against that taking share. And then the fourth is just the balance sheet and funding access.

58:04These businesses just require a huge amount of funding to reach a point of profitability. And realistically, a competitor would need multiple billion euros of equity capital alone to try and get to a point where they could compete with AutoOne. And as we saw with Kazoo, even in that case, it doesn't guarantee success. I think that was laid out well there. In terms of how you approach the stock itself with all of this throughout the discussion involved, what are your thoughts in terms of a framework for valuation? How would you say the market as a whole uses valuation framework? Just any general commentary, you don't have to give a stock price target or anything like that.

58:45Just I'm curious how it's typically valued. We approach the valuation and returns question asking what kind of earnings power Auto One will have in five to 10 years and what sort of multiple do we think the business will trade on then? So really the three variables that we think about are growth, margin and multiple in that framework. And so starting with growth, we called out that the company's less than 3 % penetrated of the European used car market. We think it can grow revenue about 30 % this year and probably sustain top line of well north of 20 % for at least the next five years, with a credible case that it can grow faster with the sourcing dealer penetration and auto hero mix driving upside from there.

59:30On the margin debate, AutoOne exited 2025 at about 2.5 % EBITDA margins. If the business can reach the low end of management's margin framework over the next five years, which was that 5 % to 9 % EBITDA margin target, then obviously earnings are going to compound materially faster than revenue growth. And so on simple maths, if they hit the bottom end of that margin guidance, you're talking about earnings compounding at north of 35 % over that period. If you believe they can hit the top end of that range, then you're talking about earnings compounding closer to 50 % over the next five years. The question then goes to valuation and really what multiples should, in that scenario, a much larger, more profitable and mature business deserve.

1:00:22We really think there's three ways to frame this debate. So the first is the dealer lens. Under this perspective and this argument, Auto One is really just a big car dealer with a slick website. and on that framing, which you can tell we obviously don't agree with, the market will continue to focus on inventory risk, funding dependence and cyclicality of the business model. And under that scenario, it would deserve a more conservative multiple. There's a pretty broad set of peers within this space, Penske, Lithia, Group One, AutoNation, CarMax in the US. I know there's a lot of underlying dispersion in business models, but generally speaking, and these sorts of businesses trades around the low teens earnings multiple but only growing revenue mid single digit the second lens which is more in line with how we think about the company is as marketing infrastructure or a platform and so under this view the value isn't just turning inventory but it's in the two-sided network it's the pricing engine the logistics density, the data advantage, and then also the funding capability that they've built up over time.

1:01:31And so with those platform characteristics, we think AutoOne should be worth materially more than a traditional value, a traditional dealer, even if it never deserves a sort of a pure software on internet platform multiple. There's some interesting comps and there'll probably be a fair bit of debate from calling this out, but businesses like Copart, USS in Japan, or Ritchie Brothers as potentially useful reference points for framing that valuation. And so a multiple we could see under that scenario probably has a two handle on it for a mid-teens level of growth. Our view is that auto one should be worth more than a dealer.

1:02:10It has the network effects. It has that data advantage, but probably worth less than a pure internet platform, just given the capital dynamics that we've talked about. Today, the business trades at a little over 20 times, EBITDA less capex, earnings growth in that 35 to 50 % range over the next five years. Depending on your view of multiple, you can then back out sort of the return expectations that you can have. Yeah, those numbers in the US, I mean, that would be a big mismatch if it played out and nice for shareholders. And it'll be interesting to see. It's a very specific moment in time, but the capital intensity relative to the internet, the SaaS players, we're seeing a shift in that debate.

1:02:54So maybe in five years time, the multiples will reflect that as well. We'll see. We'll see what happens. This has been fascinating. I really appreciate that framework and the breakdown. And you've explained all of this, especially relative to what a US listener like myself would be familiar with. We close these out with just lessons. What would you point to just in terms of the lessons that you can take away from AutoOne and maybe apply elsewhere as an investor? AutoOne had a number of really interesting lessons that we took from it. Two that I would call out. First is that the winning marketplace model often isn't the asset-like version.

1:03:33And so I think we've seen this happen a number of times across multiple industries. over the years. An interesting analog might be that eBay was the asset-like classified business with great margins, and that was ultimately superseded by Amazon. Again, obviously a much more operationally complex, low-margin, asset-intensive business, but ultimately a much larger one. I think we also saw in food delivery, the value shifted away from platforms that just provided the listings layer or the classified-like experience and moved towards the door dashes of the world, which fully vertically integrated into the delivery experience themselves.

1:04:14They dealt with drivers and ultimately became much better businesses in the process. I think it really goes back and a way to invert it to say for these asset-like businesses, they're always at a degree of risk from a competitor coming in and willing to do the difficult operational, low marginal, capital intensive thing. And it goes to the Amazon call out of your margin is my opportunity. And I think we're seeing that play out here with Auto One. The second lesson for us is capital cycles and funding cycles and how they impact industry returns. I think we've seen particularly over the last decade that long periods of abundant capital, particularly from VC investors, are great for consumers, but typically bad for investors.

1:05:00They can fund an incredible amount of competition, but ultimately they delay or hide industry rationalization and hide the underlying economics of the eventual winner. That was true across a whole range of internet and logistics heavy categories through 2021. There was the food delivery wars, e-commerce, there was a huge amount of investment. But what we've found is that when that capital cycle turns, the picture changes, the weaker competitors fall away, and the businesses that use that easy money period to build the real infrastructure, the network density and the scale can emerge much stronger.

1:05:39And that's often the opportunity and when things become interesting for investors. The final takeaway, I think, is that businesses that look too operationally messy or capital intensive during the build phase can become attractive once that market structure settles and the scale advantages start to show through. It's been a fascinating discussion. Again, I was very interested in understanding this business, particularly the nuances. Those were some great lessons to cap it off. Thank you very much, Harrison, for sharing the knowledge here. Thanks for having me, Matt. To find more episodes of Breakdowns ranging from Costco to Visa to Moderna or to sign up for our weekly summary check out JoinColossus.com That's J-O-I-N-C-O-L-O-S-S-U-S dot com