The American economy has a rich history of creating the world's most valuable companies over the past century even though its leading industries are constantly changing:
- United States Steel became the world's first $1 billion company in 1901.
- General Motors rode the automotive boom to become the world's first $50 billion company in 1955.
- The power of conglomerates was on full display when General Electric became the first-ever $100 billion company in 1995.
- By 2018, the technology sector reigned supreme, and Apple hit the most impressive milestone of all: a $1 trillion valuation.
Apple is a $2.9 trillion company today, but it recently lost its status as the world's largest company to Microsoft, which is worth a shade over $3 trillion. Since 2018, Nvidia, Amazon, Alphabet (Google), and Meta Platforms have also surpassed $1 trillion valuations.
There might be one more company set to join that exclusive club. Uber Technologies (UBER -0.38%) is the world's largest provider of ride-hailing services, and it's preparing for a shift to autonomous vehicles that could transform the company's economics.
Uber is worth $146 billion as of this writing, so a rise to $1 trillion would translate to a gain of 680% in its stock price. Here's why I think it could happen within 10 years.
Ride-hailing is officially back
Uber's core business is ride-hailing (mobility), but it took a dive during the pandemic when the economy ground to a halt. The company's delivery platform, led by UberEats, successfully picked up the slack during that period, and it continues to grow.
But midway through 2023, the mobility segment officially surpassed delivery to once again become its primary source of gross bookings. That momentum continued throughout the year, and in the fourth quarter (ended Dec. 31), the mobility segment logged a record-high $19.3 billion in gross bookings. It represented 28% year-over-year growth, far outpacing the 17% growth of the delivery business.
Throughout 2023, Uber's 150 million monthly platform customers booked over 9.4 billion trips across mobility, delivery, and the company's newer commercial freight segment. Total gross bookings were $137.8 billion for the year, and they were made possible by 6.8 million drivers working within the Uber ecosystem. Each number I just cited represents a record high.
Management focused heavily on optimization last year, which involved cost cuts. It was a departure from the growth-at-all-costs posture the company had maintained since it was founded, and the shift led to the first profitable year in its history. It had a 2023 net income of almost $1.9 billion, which was a huge swing from the $9.1 billion net loss it generated in 2022.
The future of mobility, delivery, and freight is autonomous
The 6.8 million drivers in Uber's ecosystem are by far the company's largest cost. A total of $62 billion of the $137.8 billion in gross bookings was paid to drivers in 2023. After deducting the money paid to restaurants, grocery stores, and various partners as part of customer orders, total bookings translated to $37.2 billion in revenue for the year and nearly $1.9 billion in profit.
Uber is preparing for a shift to self-driving cars and trucks, which could significantly reduce its costs. The company now has 10 autonomous partnerships across all segments, and as of the fourth quarter, tens of thousands of autonomous rides had already been completed.
The company signed a 10-year deal in 2022 with Motional, a leading autonomous-vehicle joint venture between mobility technology company Aptiv and Korean automaker Hyundai. Motional has already developed an autonomous platform using Hyundai's Ioniq 5 electric vehicle as a base, and Uber will bring its 150 million monthly platform customers to the table to accelerate adoption.
It also has a partnership with Alphabet's self-driving subsidiary, Waymo, which is already live and working in Phoenix, Arizona. In December, the company also unveiled a new partnership with Torc (owned by Mercedes-Benz), which will use data from the Uber Freight platform to accelerate the development of autonomous trucks.
On top of those partnerships, Uber owns a 21% direct equity stake in Aurora, which acquired Uber's in-house self-driving division in 2020 and has continued to develop its technology. It also owns a 4% stake in mobility company Joby Aviation, which is developing autonomous aerial vehicles.
Image source: Getty Images.
Uber's (mathematical) path to the $1 trillion club
Cathie Wood's Ark Investment Management thinks autonomous ride-hailing alone will create $14 trillion in enterprise value for companies and generate $4 trillion in revenue by 2028. Uber already has a 25% global market share in traditional ride-sharing, and its autonomous partnerships could make it a leader in the driverless segment, too.
But let's set that aside for a moment. Based on Uber's $37.2 billion in 2023 revenue and the company's current valuation of $146 billion, its stock trades at a price-to-sales (P/S) ratio of 3.9.
If that P/S multiple remains constant, Uber will have to reach $256.4 billion in annual revenue to justify a $1 trillion valuation. It could hit the mark within 10 years if its revenue grows at a compound annual rate of 21.3% between now and then.
Revenue has grown at a compound annual rate of 29.4% since 2017, which is comfortably above where it needs to be, and that's without a meaningful contribution from autonomous ride-hailing.
That rate will be extremely difficult to sustain even over the next few years because the business is so large now. But Ark Invest's forecast could change the equation entirely if it proves correct. Uber could capture $1 trillion worth of revenue from its autonomous ride-hailing between now and 2028 alone, assuming its existing market share in traditional ride-hailing remains constant.
That alone will warrant a valuation well beyond $1 trillion – and it doesn't include innovations in autonomous delivery or freight.
I will caution investors that Ark's forecasts might be on the ambitious side. However, Uber isn't the only company that has spotted this opportunity. Tesla is gearing up to launch its own autonomous driving software, and CEO Elon Musk intends to build a ride-sharing network so its vehicle owners can earn extra income when they aren't using their cars.
Even if autonomous technologies don't take off as quickly as Ark predicts, it's clear that's where the industry is headed, and I think it will open up a path for Uber to become a $1 trillion company within the next decade.
