Alphabet’s Self-Driving Car May Boost Stock 25%

Big revenues from Waymo, Google parent Alphabet Inc.’s (GOOGL) self-driving car unit, could help drive the tech titan’s stock significantly higher. Valuing the Waymo unit, with its separate robotaxi, logistics and licensing businesses at a combined market value of around $175 billion, Morgan Stanley analysts suggest a sum-of-parts valuation of Alphabet’s shares of $1,550, implying an upside of more than 25% from Thursday’s close. While the bank’s own price target for the company is set at a lower price of $1,325, $50 below FactSet’s mean, the sum-of-parts value would also imply a market capitalization that would put Alphabet into the $1-trillion club with Apple, according to Barron’s.

Alphabet's Total Market Value $845.77 billion
Waymo's Estimated Value $175 billion
Robotaxi Business $80 billion
Logistics Business $90 billion
Licensing Business $7 billion

Source: Yahoo! Finance, Barron's

   Implied Share Price  Upside
 Sum-of-Parts Valuation  $1,550  26.6%
 Morgan Stanley's Price Target  $1,325  8.2%

Source: Barron's

Waymo’s Value

While Morgan Stanley’s valuation for the Waymo unit is one of the higher ones out there, other analysts have suggested triple-digit billion-dollar valuations this year. According to Morgan Stanley, the three main drivers of the Waymo unit are its three main business components: 1) its autonomous robotaxi business; 2) its logistics business; and 3) its licensing business.

For the autonomous robotaxi business, valued at around $80 billion, Alphabet would outfit vehicles from other manufactures with its self-driving vehicle technology. By 2040, the analysts expect a fleet of 16 million robotaxis bringing in $0.70 a mile in revenues. (To read more, see: Uber and Google’s Waymo in Talks About Partnership.)

The logistics business, valued at about $90 billion, would use self-driving cars to support the last mile of delivery to local businesses. Not only would this type of service put Alphabet in direct competition with traditional delivery services like United Parcel Service and FedEx, but it would also put it up against Amazon.com’s own logistics business offering last-mile delivery, according to Barron’s August article.

Finally, the Waymo licensing business, valued at around $7 billion, which would require other auto manufacturers to pay for access to Alphabet’s self-driving vehicle technology. While the analysts expect the personal use of self-driving cars to initially lag their use by ride-hailing services due to high costs and the current acceptance for the ride-share models, they see the ability to negotiate license revenues from auto makers as being a key long-term advantage for Alphabet.

Alphabet’s Dominating Diversity

Morgan Stanley’s analysis of Waymo is just another sign of Alphabet’s increasing diversity, which should help to push its stock further ahead. While much of the company’s revenues come from online advertising sales, for which it competes with other big online players like Facebook, the company’s platforms for selling advertising are much more diversified than Facebook’s. Those platforms include the classic Google search engine, Chrome web browser, Maps, YouTube, Google Play Store, Android and Gmail. (To read more, see: 7 Reasons Why Alphabet Will Dominate.)

Take the Next Step to Invest
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Service
Name
Description