Waymo's Path To $50B In Annual Revenue

Alphabet, Inc GOOG GOOGL subsidiary Waymo has taken the lead in the U.S. autonomous vehicle race, and Waymo may be a major cash cow for investors within a decade.

According to Bank of America analyst Justin Post, Waymo is distancing itself from the competition when it comes to driverless test miles, and the company could have a paid ride-hailing service up and running by the end of 2018 or early 2019.

The initial Waymo roll-out will likely be modest, but Post’s long-term projections suggest Waymo could eventually account for a major portion of Alphabet’s value.

The Numbers

Assuming the Waymo roll-out goes relatively smoothly, Post estimates the company could deploy up to 600,000 vehicles and make up 1.4 percent of all U.S. road miles by 2029. More importantly for Alphabet investors, Waymo could also be generating $1 billion in annual revenue by 2020 and $50 billion in annual revenue by 2029. Post also estimates Waymo’s long-term margins could expand to the 25 percent range.

“With Alphabet’s artificial intelligence / machine learning expertise, we think Waymo has a strong position in the industry, and see a potential valuation of $75bn, which is material in our Google sum of parts,” Post wrote in a Monday note.

Breaking Ground

Waymo was the first U.S. company to test Level 4 autonomous vehicles on public U.S. roads, and the company has already logged more than 8 million critical test miles. Those miles have provided Waymo with critical data that should help convince regulators and potential customers of the service’s safety.

While Alphabet is a far cry from an AV pure-play at this point, it’s also the only way for investors to get a piece of the leading U.S. driverless vehicle company until Alphabet chooses to spin-off Waymo.

Bank of America has a Buy rating and $1,390 price target for Alphabet's stock.

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Photo courtesy of Waymo.