Alphabet (GOOGL) Could Spin-Off Waymo, Creating a $70B Competitor to Tesla (TSLA) - Morgan Stanley

May 23, 2017 8:48 AM EDT
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Morgan Stanley analyst Adam Jones thinks the partnership between Alphabet's (NASDAQ: GOOGL) Waymo and Lyft is an important step in the company's ability to drive the autonomous transition. He views Waymo as a potential spin-out candidate for Alphabet that could be worth $70 billion and thereby compete for talent and capital versus Tesla (NASDAQ: TSLA).

The firm's $70 billion estimates for Waymo comes if they assume Waymo can grow to ~1% of global miles driven by 2030 (based on a fleet of ~3mn cars each driving ~65k miles/year) and that Waymo can generate on average~$1.25in revenue per mile driven.

The analyst said miles/year and revenue/mile could lead to an enterprise value of ~$140 billion for Waymo.

Jonas views Waymo as the most likely Other Bets candidate to be spun off into a separate company given 1) Its valuation opportunity; 2) The company (like Verily) has already graduated from Google X to a stand-alone entity within Other Bets; 3) We see Waymo facing material regulatory and (likely) legal risk as it continues to drive the autonomous vehicle transition that parent-company Alphabet may not necessarily wish to be directly exposed to.

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