August was a great month for Uber when it announced a multi-year strategic partnership with Cruise, General Motors’ autonomous vehicles business unit. The partnership was supposed to launch in 2025 with the deployment of Chevy autonomous vehicles. Earlier this week, this plan received a major setback when GM announced it was scrapping the Cruise business unit altogether, shunning plans on developing its autonomous driving technology. All of a sudden, Uber’s partnership didn’t look all that attractive.
Some will say there is a positive in this. Uber has one less competitor to deal with. However it is hard for the company to quantify the impact of Cruise’s termination. GM itself couldn’t give a straight answer to a question about the future of the GM-Uber collaboration. As a result, Uber is down 25% from its peak.
A close up view of a hand holding a smartphone, using a ride sharing app.
The company has another headache. Everyone now knows that it is hard to survive in the capital-intensive autonomous driving market. The tech hasn’t been perfected yet and needs a continuous inflow of dollars to continue the R&D. Only Alphabet and Tesla have the financial muscle to achieve that. Uber doesn’t have the financial strength of these companies, but it does have advantages. It has the infrastructure, the right partnerships and collaborations, and market penetration. It also has the advantage of economies of scale, as it can use its existing infrastructure when launching autonomous driving. But perfecting the tech is the most important variable at the moment, something Uber is constrained in.
We believe the drop in stock price in the last month has brought it to a level where this disadvantage is already priced in and the risk-reward ratio is compelling. Goldman Sachs analyst Eric Sheridan believes gross bookings will continue to grow at a CAGR of 16% through 2026, which means the business is going well for Uber despite all the headwinds and negative investor sentiment. The company has multiple revenue streams such as cargo services, food delivery, rides, and investments in automatic vehicle technology. Even though these services depend on the underlying mobility business, they can be leveraged to make the stock a multi-bagger if the company can unlock autonomous driving.
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This article was originally published at Insider Monkey.
