Why Alphabet Is Uber's Biggest Looming Threat

Uber Technologies Inc. may to go public with a market value of $90-$100 billion this week amid a flock of euphoric investors hoping to get in on the next big shift in transportation. Despite that, Uber faces a looming threat that could widen its losses and crush its market value: rivals who plan to expand into the market with autonomous vehicles, whose operating costs may be half that of human-driven Uber vehicles, according to a detailed story in Barron’s.

Uber’s growing list of competitors is led by Alphabet Inc.'s (GOOGL) Waymo unit, which is poised to stage an assault on the ride hailing industry. Financed by a deep-pocketed and technologically savvy Alphabet, whose $822 billion market value is at least eight times bigger than Uber's, Waymo is already expanding its robo-taxis strategy in Phoenix.

How Alphabet's Waymo Could Crush Uber

  • Rolling out autonomous cars in Phoenix
  • Alphabet, with a market cap near $822 billion, has more financial muscle than mega-unicorn Uber
  • Waymo has orders for 80,000 cars for robo-taxis, which cost half as much to operate as cars with human drivers
  • Google’s self-driving car unit is “way ahead” on crucial technology such as 3-D maps

Robo-Cabs Threaten Uber Profitability

“By 2025, we believe Waymo will have robo-cab services, sold directly to consumer, in 15 to 20 major U.S. markets, with GM/Cruise in a handful,” wrote Paul Sagawa, an analyst with investment research firm SSR, per Barron’s. “This is a very difficult situation for Lyft Inc. (LYFT) and Uber.”

Uber’s autonomous vehicle technology unit was recently valued at $7.3 billion and is backed by major players such as SoftBank’s Vision Fund, Toyota Motor, and another Japanese investors. But analysts say that Alphabet’s size, technological prowess and financial strength give the company an edge.

Waymo already has orders for 80,000 cars for its robo-taxis, and SSR's Sagawa says that Google is “way ahead” of Uber on projects such as three-dimensional maps which are crucial for safety and efficiency. Sagawa says that a widespread rollout of robo-taxis, which cost at least half as much to operate as cars with drivers, could “preclude either company (Uber or Lyft) from ever reaching profitability.”

Other analysts agree that Waymo has a huge advantage. In a recent note to clients, Jefferies analyst Brent Hill wrote that Waymo is the “clear leader” in the self-driving landscape, per Barron's.

Looking Ahead

Uber faces other issues once it completes its IPO. Critics say its overly dependent on a handful of cities such as New York for its revenue. They also say Uber faces widening losses, and the estimated market for its services may be much smaller than the company estimates in its prospectus, as outlined by Barron’s. To be sure, these concerns may do little to lessen investor enthusiasm for one of the biggest IPOs in years.

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