Ark Investment Management is led by Cathie Wood, one of the most vocal technology bulls on Wall Street. Wood has a reputation for making large, long-term bets on innovative companies through Ark's portfolio of exchange-traded funds (ETFs). Ark Invest just released its "Big Ideas 2023" report, and it made a blockbuster call on the autonomous ride-hailing industry. It says that by 2027, the sector could amass a $14 trillion enterprise value based on $4 trillion in annual revenue.
Ark is betting that self-driving vehicles will reduce the cost of mobility by a whopping 88% compared to human-driven ride-hailing services. The savings would be so substantial that robotaxis could replace up to 60% of short-haul airline flights, according to Ark's financial models.
The business case for autonomous vehicles is in its infancy, but if Ark Invest's predictions prove accurate, Uber Technologies (UBER 0.53%) could quickly become one of the biggest winners.
Uber's complicated history in the autonomous-vehicle space
Uber's largest expense today is its people. The ride-hailing giant has roughly 5.4 million drivers on the road across its mobility, food delivery, and freight platforms. But the company has always envisioned a future without those drivers, based on rapidly advancing technology that would allow cars to drive themselves.
The company was originally developing an autonomous-driving program in-house under a brand called Advanced Technologies Group (ATG), but after a series of missteps, it sold that division to a start-up called Aurora Innovations in 2020, though Uber remained an investor in Aurora.
ATG's chief engineer was discovered to have stolen trade secrets from Alphabet's Waymo, which was building autonomous-vehicle technologies of its own. Then, in 2018, Uber's real-world testing went horribly wrong when one of its self-driving vehicles was involved in an accident that killed a pedestrian. Between those company-specific challenges and the pandemic -- which clobbered demand for Uber's core mobility business -- it was compelled to sell off money-losing non-core segments like ATG.
But autonomous vehicles remain the inevitable future of Uber's business. Not only will they substantially reduce costs (because self-driving cars don't need to get paid), but Uber periodically finds itself short of human drivers, which limits the company's growth potential.
As a result, Uber recently inked a 10-year deal with Motional that marked its reentry into the space. Motional is a joint venture between giant South Korean automaker Hyundai and Aptiv, an automotive technology company. The goal is to pair Motional's successful autonomous robotaxi program with Uber's enormous customer platform, potentially creating the world's largest network of active self-driving vehicles.
Uber's here-and-now looks pretty good, too
While autonomous driving technology is very much here, it's not yet in wide enough use to make a noteworthy impact on Uber's financials. Nonetheless, the company did just report its fourth-quarter 2022 results, and investors have plenty to be excited about.
Uber had 131 million customers across its platforms during the fourth quarter, up from 118 million in the year-ago period. Its reach is unrivaled in the mobility industry, which is why the partnership with Motional makes so much sense -- both parties are leveraging their strengths.
Uber's network facilitated 2.1 billion trips in Q4, which was a 19% year-over-year increase.
After a period of understandable weakness during the first couple of COVID-19-pandemic years, I recently wrote that Uber's mobility business was about to overtake its delivery segment to once again become the largest driver of its gross bookings. That happened in Q4 as mobility bookings grew by 37% to $14.9 billion, while its delivery segment bookings grew by 14% to $14.3 billion.
But zooming out and observing the big picture, Uber's strong 2022 solidified its return to long-term growth after its stumble in 2020.
Here's why Uber stock is a buy now
The opportunity outlined by Ark Invest is clear, and the next five years will be incredibly exciting if the autonomous vehicle industry takes off as the firm predicts. But Uber has no shortage of opportunities in its established businesses.
Consider Uber Freight, which serves as a digital marketplace for the logistics industry. It was responsible for just $7 billion of the company's total revenue in 2022, but that's a mere fraction of its opportunity. At Uber's investor day last year, management highlighted that trucking alone presented an $884 billion addressable market in the U.S. and $4 trillion globally.
Uber Freight has more than 200,000 users on the platform with $17 billion in freight under management, but it has a long runway for growth. It has already become the world's largest digital freight marketplace, so it's attacking that opportunity from a position of strength.
Uber stock remains down 43% from its all-time high amid the market's pessimism in the broader tech sector. But thanks to its substantial revenue growth in 2022, its price-to-sales ratio is just 2.2, which is near its cheapest level ever.
There has arguably never been a better time to become an Uber shareholder for both the short-term and the long-term -- and that will prove especially true if Ark Invest's predictions come to fruition.
