4:30 AM Tuo Feb 5 e t. 55%/_:• a Appendix: Carvana Memo (NYSE: CVNA) Note This NW wiginalfr a,: internal memo nil/esby Philip Kew a/ Hayden Copia. It &mfr. been trpmblisbed the betties goarpartnen. We've always been impressed by portfolio managers who were able to successfully bet on what were early- stage companies on their way to disrupting whole industries. For example, Nicholas Sleep of Nomad Investment Partnership's writings on .tinazon from the early 2000s comes to mind. With hindsight, the business else for Amazon and e-commerce may seem obvious. But back then, at less than S7 Billion in revenues, Amazon's ability to challenge the likes of Barnes and Noble or Walmart was uncertain at best. Was the investment purely a bet on Jeff Bezos? Was the total addressable market just Large enough to take the chance? Was this decision more along the lines of a venture capitalist than a value investor? Is this a type of bet that one can get good at and therefore repeat over time? These were the questions we had to answer for Carvana (CVNA), our long thesis today. This is a company that intends to disrupt the 576413 used car industry by using an c-commerce model. The used car industry is highly fragmented and its biggest player, CarNlax, has only a market share of —1.9%. Over 90% of the used car dealerships are still owned by small mom & pop businesses. We think Carvana is well-positioned to consolidate this industry. With Can-ana's e-commerce model, there is now no need for each market to be served only by local inventory (what the dealership can buy and display). When coupled with a nationwide logistics network, Can-am is able to deliver the tuition's inventory to any individual marker. This lowers the capital required to build inventory in each market. Carvana is able to keep all its 15,000+ inventory of cars in just four locations (IRCs mentioned below), versus CarMax which has —350 cars per location. A pooled national inventory improves inven