One of Alphabet’s “other bets,” a category that has yet to add much to Google’s parent company, could be worth $70 billion.
Now that Waymo, Alphabet’s
self-driving car unit, has partnered with ride-hailing service Lyft, Morgan Stanley analysts see a path forward for monetization and the potential to spin off the segment into a separate company. As self-driving cars free up drivers, they also see the potential for Google’s advertising services to monetize the riders as they browse the internet.
The analysts calculated the enterprise value based on the assumption that Waymo cars will be used in about 1% of all global miles driven by 2030. This number is based off a fleet of three million cars that each drive about 65,000 miles a year. If the self-driving cars charged about $1.25 per mile in a ride-hailing program like Lyft’s, it would lead to a $70 billion valuation that would add about 12% to Alphabet’s overall enterprise value, the analysts contend.
Experts have said Waymo’s technology is among the best in the self-driving field, but that it has been held back by a lack of commercialization and overshadowed by Tesla Inc.
, which has been able to log more test miles through its fleet of cars driven by owners. With the Lyft partnership, Morgan Stanley analysts—including Adam Jonas, known for his bullish views of Tesla—see Waymo emerging as more of a competitor.
Still, the analysts do not expect Waymo to generate a positive operating profit until 2022 and expect Waymo to continue to invest in the technology, which could weigh on margins. The analysts currently value the overall “other bets” segment, which includes Nest, a provider of smart home products, internet provider Fiber and Verily, a life-sciences unit, at negative $21 billion.
Alphabet’s “other bets” segment contributed $244 million in revenue in the first-quarter of 2017, up from $165 million in the year-earlier period. It posted a wider operating loss of $855 million, however, compared with $774 million in the year-earlier period.
Waymo is also locked in a lawsuit with Uber Technologies Inc., a competitor of Lyft, over self-driving technology Waymo purports was stolen by a former employee and brought to Uber.
While Waymo’s strong business case could lead to a spinoff of the company, the spinoff may also be a regulatory necessity for Alphabet, as the analysts surmise that the company may not want to be the first to test the U.S. court system as questions about the cars’ safety arise.
“We see Waymo facing material regulatory and (likely) legal risk as it continues to drive the autonomous vehicle transition that parent-company Alphabet may not necessarily wish to be directly exposed to,” Nowak wrote.
The self-driving cars may free up a new segment of consumers for Alphabet, as the analysts foresee passengers browsing the web, watching videos and shopping. This could be an advertising opportunity, with the ads targeting consumers based on location.
“Drivers’ time previously spent driving is now available for consumption and monetization,” said Brian Nowak, lead analyst on the note.
Shares of Alphabet have gained 14% in the past three months, compared with the S&P 500’s index’s
gain of 1.5%.