Markel folks were also very complementary of KMX when the topic was brought up in Omaha . . .
Just to offer a little counterpoint to the apparently cheery consensus around KMX, I would point out that Markel holds ~125 stocks in its equity portfolio and Carmax was not among them as of the most recent MKL 13F filing (Aug. 5):
Tom Gayner was among the early Carmax evangelists, touting its no-haggle model back in the days when customers were still subject to the aggravation of used-car salesmen (and their managers). It was a top-five position at Markel for a long while and he did very well with it. Carmax was the disruptor then. Now it’s the potential disruptee by online-only models that have dispensed with showrooms and storefronts altogether.
Gayner ditched his position in the early days of the pandemic when he thought it was important to raise cash. He has since said he overdid it, but he’s had plenty of opportunity to re-establish a position in KMX at relatively attractive prices, especially this year, and he hasn’t (at least as of Aug. 5). He nibbled on a bunch of fallen flyers in Q2, including Netflix and Shopify, but not Carmax.
During their hypergrowth phase their moat was the ease and simplicity of transactions compared to an existing model that many people loathed. Now anybody will send you an instant fixed price, even traditional dealerships, so the moat now seems about ubiquity and brand, which may well be enough to keep them thriving, I don’t know.
My family anecdote is no more statistically significant than anyone else’s, but my son, a digitally facile millennial, buys and sells all his vehicles through Carvana. He is happy to do every aspect of these transactions online and never set foot on a car lot. Carvana is not profitable, of course, but its TTM revenues are now about 40% of Carmax’s, so it seems plausible it could get there if/when its digital land-grab phase is over.
In its mature phase, KMX has been a reliable pendulum play. You could buy it toward the low end of its 52-week range and sell it toward the high end, rinse and repeat. If that’s still true, buying at these recent sub-100 levels seems likely to work out well, although it might take longer than usual as recessions are rarely kind to public market valuations of big-ticket retailers.
I would just suggest there’s more risk here than there was. That an avowed fan like Gayner hasn’t seen fit to get back in seems notable to me. A number of great businesses are selling for rather promising prices at present, which makes it easier, at least for me, to steer clear of historically leading businesses like Carmax and Netflix that are dealing with changing landscapes. Disruption of successful models, especially for consumer-facing businesses, seems to happen more rapidly than ever these days.