Self-driving cars are no longer science fiction. Numerous startups and established tech companies have developed autonomous platforms to transform the way we travel, and it’s an industry with significant long-term financial potential.
Uber Technologies (NYSE: UBER) could be one of the biggest beneficiaries of the shift to autonomous driving. It operates the world’s largest taxi network, so it will be attractive to any self-driving developer looking to reach the most customers. What’s more, autonomy could save Uber significant amounts of money, since human drivers currently represent its largest expense.
I think Uber stock could fivefold over the next 10 years for the same reasons. It could turn $200,000 into $1 million in 2034.
Autonomy could be a substantial financial windfall for Uber
In the recent second quarter of 2024 (ending June 30), Uber had a record 156 million monthly platform customers. Over the past four quarters, Uber accepted $150.4 billion in gross bookings across ride-hailing, food delivery, and commercial freight. A gross booking is the total cost of a ride or food order, including driver fees.
During the same period, Uber paid its drivers about $67.7 billion, making them by far the company’s largest expense. After excluding drivers and funds paid to restaurants for food orders, Uber’s $150.4 billion in bookings over the past four quarters translated into just $40 billion in revenue.
Once Uber accounts for operating expenses like marketing and research and development, it reported a GAAP net profit of just $2 billion. That number should improve in the coming years as the company focuses on becoming more efficient. But I wanted to highlight the massive gap between what customers pay Uber ($150.4 billion) and what ultimately flows to the bottom line ($2 billion).
That’s why autonomous vehicles could transform Uber’s economics. The transition to self-driving cars could take a decade or more, but it would eliminate the $67.7 billion a year the company spends on human drivers. Some of that cost will be replaced by fees paid to owners of the autonomous vehicles in Uber’s network, but since they can operate around the clock with minimal ongoing costs, there will undoubtedly be savings.
Theoretically — and this isn’t necessarily on the agenda — Uber could also buy a fleet of its own autonomous vehicles for its most popular cities and reap 100% of the revenue from each ride. That would be a real game changer.
Uber is already heavily focused on self-driving cars
Uber is working with 10 different companies that are developing autonomous vehicles, and many of them are already active in the network. During Q2, Uber said that autonomous rides grew sixfold compared to the same period a year ago.
Alphabet subsidiary Waymo is one of Uber’s active partners. Customers can already hail an autonomous Waymo through the Uber app in Phoenix, Arizona, and the two companies also launched autonomous food delivery in April.
Then there’s Aurora, a mobility company that acquired Uber’s own autonomous vehicle project in 2020. As part of the deal, Uber took an equity stake in Aurora, which is currently worth about $900 million. The two companies have a close relationship and recently expanded their partnership with the launch of Premier Autonomy, which allows Uber Freight to use Aurora’s self-driving trucks to haul commercial loads.
In July, Uber also announced a multi-year partnership with a China-based electric vehicle (EV) giant. by DIt will involve adding 100,000 human-driven BYD EVs to Uber’s network, but the two companies have also agreed to collaborate on autonomous vehicles with the aim of deploying them for Uber in the future.
It’s clear that Uber is already the leading platform for self-driving cars, but the company will face competition in the near future. TeslaFor example, has developed some of the most advanced self-driving car software in the industry, and CEO Elon Musk wants to set up a taxi network within the company.
Uber has a clear advantage due to its huge customer base, but Tesla is a popular brand with consumers and will therefore certainly gain market share in the self-driving car space.
The road to fivefold growth within ten years
Based on Uber’s $40 billion in revenue over the past 12 months and current market cap of $152.8 billion, the stock is trading at a price-to-sales (P/S) ratio of 3.8. Assuming the P/S ratio remains constant, Uber would need to generate $200 billion in annual revenue by 2034 to justify a five-fold increase in the stock’s earnings.
That means Uber needs to grow its revenue at a compound annual rate of 17.5% over the next 10 years. Between 2017 and 2023, the company’s revenue grew 29.4% per year, and Wall Street’s full-year forecast for 2024 points to growth of 24.6%.
Keep in mind that Uber has achieved the above with virtually no real contribution from autonomous driving to date. Therefore, the company could actually deliver accelerated growth in the coming years as more of the $67.7 billion it spends annually on human drivers potentially converts into revenue instead.
Furthermore, Uber’s P/S ratio of 3.8 is well below its high of 8.9. I’m not saying it will go back to that level, but the autonomous business could prompt investors to give the company a higher valuation because of its long-term potential. Any increase in the P/S ratio could propel Uber to a five-fold increase in its stock, even sooner than 2034.
Therefore, it seems that Uber stock is a prime candidate to turn a $200,000 investment today into $1 million in 10 years. But don’t worry: Investors with a starting balance could make a five-fold return if the above scenario plays out.
Should You Invest $1,000 in Uber Technologies Now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, BYD Company, Tesla and Uber Technologies. The Motley Fool has a disclosure policy.
1 Super Stock That Could Convert $200,000 Into $1 Million By 2034 was originally published by The Motley Fool
