The American economy is the greatest value creator in the world. While the technology sector is the dominant growth driver behind it today, it wasn't always that way:
- United States Steel became the world's first $1 billion company in 1901.
- General Motors rode the automotive revolution to become the world's first $10 billion company in 1955.
- General Electric built a conglomerate that amassed $100 billion in value before any other company in 1995.
In 2018, Apple became the first business with a $1 trillion valuation. It remains the world's largest company, and it was recently worth over $3 trillion.
Apple has since been followed into the $1 trillion club by Microsoft, Amazon, Google parent Alphabet, and Nvidia -- and I think there's one more that could join them.
Uber Technologies (UBER -0.38%) operates the world's largest ride-hailing platform, but the company is set for a major transformation thanks to artificial intelligence (AI) and autonomous vehicles. It is worth just $101.3 billion today, so investors who buy its stock could earn a whopping 987% return if the company eventually joins the trillion-dollar club. Here's how it could get there.
Here's what Uber's business looks like right now
Uber is best known for its mobility (ride-sharing) business. It also operates a successful food delivery platform called Uber Eats, and a commercial freight network called Uber Freight.
In the recent third quarter (ended Sept. 30), Uber completed 2.4 billion trips across its ride-hailing and food delivery segments, which was a 25% increase from the same time a year ago. Across its entire business, customers booked $35.2 billion worth of rides, food delivery, and freight delivery services during the quarter.
But here's the issue: Uber's business is incredibly expensive to run. It takes a percentage of each trip a driver completes, so from the $35.2 billion in customer bookings, only $9.2 billion counted as revenue for the company. After deducting operating costs, third-quarter net income was just $221 million.
Uber's largest costs -- by a very long way -- are the 6.5 million drivers operating in its network. The company paid them $16 billion during the third quarter, which was almost half of its bookings. Suffice it to say, eliminating that cost would transform its economics, because it would keep significantly more money from each service a customer books.
Autonomous technologies could be the answer
The solution to this problem might be self-driving vehicles. According to Cathie Wood's Ark Investment Management, the emerging autonomous ride-hailing industry could generate $4 trillion worth of revenue over the next five years.
This technology was once a pipe dream, but it's very real right now, and Uber even has an active service running in Phoenix through its partnership with Google's autonomous-driving subsidiary Waymo.
Uber used to have its own self-driving development program, but it sold the division to autonomous vehicle start-up Aurora in 2020 following a series of missteps (Uber maintains a 22% ownership stake in that company). The goal is to eventually have Aurora's vehicles operating in the Uber ecosystem.
But Waymo and Aurora are the tip of the iceberg for Uber's autonomous ambitions. In 2022, the company signed a 10-year deal with Motional, a joint venture between Korean automaker Hyundai and driverless technology company Aptiv. Motional combines Hyundai's Ioniq 5 electric vehicle with Aptiv's technology to create a robotaxi that is currently on the road in Las Vegas for real-world testing.
Uber wants to focus on what it does best: maintaining a market-leading platform to connect consumers with rides. With its 142 million monthly active customers, developers of autonomous technology won't find a bigger network in which to deploy their vehicles.
Image source: Getty Images.
Uber could join the $1 trillion club within the next 10 years
Uber has a global market share of 25% in the ride-sharing business. If that translates to the autonomous ride-hailing business -- which is still in its infancy -- the company could earn $1 trillion of the $4 trillion forecast by Ark Invest over the next five years. That would almost certainly be enough for Uber to join the $1 trillion club.
But let's set that aside for a moment, because Uber's existing segments might be growing fast enough to warrant a trillion-dollar valuation within the next 10 years, without speculating on the success of autonomous vehicles.
The company is expected to generate $35.4 billion in revenue for all of 2023. Based on its current market valuation of $101.3 billion, the stock trades at a price-to-sales (P/S) ratio of just 2.8. That's down from an all-time high P/S of 8.9, but if we use the midpoint of those two numbers, it's reasonable to assume it could trade at a P/S of 5.8 over the long run.
In other words, Uber would have to generate $173 billion in annual revenue in 2033 to warrant a $1 trillion valuation. It would have to grow its revenue by 17.2% each year between now and then to get there.
Considering the company generated $7.9 billion in revenue during 2017 (its earliest available public financials), it's on track to have grown at a compound annual rate of 28.4% over the last six years. If that growth rate continues, Uber's annual revenue will top $173 billion within seven years instead of 10.
But there is a caveat
Uber's revenue growth is slowing as the years go by, so new technologies like autonomous driving will be crucial to maintaining the strength it needs to achieve the results mentioned above.
As more of Uber's business becomes autonomous, a lack of outside growth could be offset by a transformation in the company's economics -- in other words, more customer bookings would flow into Uber's coffers as revenue, instead of going to drivers. That's a huge positive for revenue growth without acquiring any new customers.
In any case, investors who buy Uber stock today stand to earn a gain of 987% if the company does eventually join Apple, Microsoft, Amazon, Alphabet, and Nvidia in the $1 trillion club.
