Self-driving cars are no longer science fiction. Numerous start-ups and established tech companies have developed autonomous platforms to transform the way we travel, and it's an industry with significant financial potential over the long term.
Uber Technologies (NYSE: UBER) could be one of the biggest beneficiaries of the shift to autonomous driving. It operates the largest ride-hailing network in the world, so it will be attractive to every developer of self-driving vehicles seeking to access the most customers. Plus, autonomy could save Uber substantial amounts of money considering human drivers are currently its largest cost.
In fact, I think Uber stock could soar fivefold over the next decade for those very reasons. Here's how it could turn $200,000 into $1 million by 2034.
Image source: Getty Images.
Autonomy could be a substantial financial windfall for Uber
As of the recent second quarter of 2024 (ended June 30), Uber had a record-high 156 million monthly platform customers. Over the last four quarters, Uber accepted $150.4 billion worth of gross bookings across ride-hailing, food delivery, and commercial freight. A gross booking is the total cost of a ride or food order, which includes driver fees.
Over that same period of time, Uber paid around $67.7 billion to its drivers, which makes them the company's largest cost by a wide margin. After stripping out drivers and funds paid to restaurants for food orders, Uber's $150.4 billion in bookings over the last four quarters translated to just $40 billion in revenue.
Then, once Uber accounted for its operating expenses like marketing and research and development, it delivered a GAAP net profit of just $2 billion. That number should improve over the next few years because the company is focused on becoming more efficient. But I wanted to highlight the enormous gap between what customers pay to Uber ($150.4 billion) and what eventually flows to the bottom line ($2 billion).
That's why autonomous vehicles could transform Uber's economics. The shift to self-driving cars could take a decade or more, but it would eliminate the $67.7 billion per year the company spends on human drivers. Some of that cost will be replaced by fees payable to the owners of the autonomous vehicles in Uber's network, but considering they can operate around the clock with minimal ongoing expenses, 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 harvest 100% of the income from each ride. That would be a true game changer.
Uber is very focused on autonomous vehicles already
Uber is partnered with 10 different companies developing autonomous vehicles, and many of them are already active within the network. During Q2, Uber said autonomous trips grew sixfold compared to the year-ago period.
Alphabet subsidiary Waymo is one of Uber's active partners. Customers can hail an autonomous Waymo through the Uber app in Phoenix, Arizona already, and the two companies also launched autonomous food delivery in April.
Then there is Aurora, a mobility company that acquired Uber's in-house autonomous vehicle project in 2020. As part of the deal, Uber took an equity stake in Aurora, which is currently worth around $900 million. The two companies are closely aligned, and they just expanded their partnership with the launch of Premier Autonomy, which will allow Uber Freight to use Aurora's self-driving trucks to haul commercial loads.
In July, Uber also announced a multiyear partnership with China-based electric vehicle (EV) giant BYD . It will involve bringing 100,000 human-driven BYD EVs into the Uber network, but the two companies have also agreed to collaborate on autonomous vehicles with the aim of deploying them on Uber in the future.
It's clear Uber is the leading platform for autonomous vehicles already, but it will face competition in the near future. Tesla , for example, has developed some of the most advanced self-driving software in the industry, and its CEO Elon Musk wants to build a ride-hailing network within the company.
Uber has a distinct advantage because of its enormous customer base, but Tesla is a popular brand with consumers so it will certainly take some market share in the autonomous space.
The road to fivefold growth within a decade
Based on Uber's trailing-12-month revenue of $40 billion and its current market capitalization of $152.8 billion, its stock trades at a price-to-sales (P/S) ratio of 3.8. Assuming that P/S ratio remains constant, Uber will have to generate $200 billion in annual revenue by 2034 to justify a fivefold gain in its stock.
That means Uber will have to grow its revenue at a compound annual rate of 17.5% over the next 10 years. Between 2017 and 2023, the company grew its revenue by 29.4% per year, and Wall Street's full-year forecast for 2024 points to growth of 24.6%.
Keep in mind Uber achieved the above with almost no real contribution from autonomous driving so far. Therefore, the company could even deliver accelerated growth in the coming years as more of the $67.7 billion it spends per year on human drivers is potentially converted into revenue instead.
Plus, Uber's P/S ratio of 3.8 is well below its peak of 8.9. I'm not saying it will go back to that level, but the autonomous business might prompt investors to assign a higher valuation to the company because of its long-term potential. Any increase in P/S ratio could drive Uber to a fivefold increase in its stock even sooner than 2034.
Therefore, Uber stock looks like a prime candidate to turn a $200,000 investment today into $1 million within a decade. But don't worry -- investors with any starting balance could achieve a fivefold return if the above scenario plays out.
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 .
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