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Why Alphabet’s Waymo Has a Lower Valuation

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On September 27, Morgan Stanley analysts lowered the valuation for Alphabet’s (GOOGL) Waymo. The investment bank gave the company a valuation of $105 billion—a sharp drop from $175 million a year ago.

Morgan Stanley slashed its valuation for Waymo. The bank thinks that the autonomous driving industry isn’t developing as fast as the expectations. Morgan Stanley thinks that the company will continue to lose money as long as it keeps safety drivers in its autonomous taxis.

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Alphabet’s Waymo wants to remove regulatory barriers

In August, Alphabet’s Waymo joined Lyft (LYFT), Ford (F), and General Motors (GM). They want to remove autonomous vehicles’ regulatory barriers. Existing traffic safety rules require a human driver to be present even if vehicles can safely drive themselves. The safety driver requirement means additional costs for companies like Waymo.

Alphabet’s Waymo ventured into the ride-hailing business. The company moves passengers around in self-driving vehicles. However, Waymo expanded its taxi service slowly. The company’s taxi service is still confined to parts of Phoenix, Arizona. Notably, the taxi service launched in December 2018. We think that regulatory hurdles might have slowed down the company’s taxi service.

General Motors has also delayed the launch of its own ride-hailing service that uses self-driving vehicles. General Motors’ Cruise subsidiary planned to launch its Waymo-like ride-hailing service by the end of 2019. We think that regulatory hurdles might have impacted Cruise’s entry into the autonomous taxi market.

Ford also plans to launch an autonomous transportation service for people and goods. The company plans to launch the service in 2021. Ford picked three cities, including Austin, Texas, for the initial rollout.

Huge market  

Although Waymo’s valuation has been cut and the firm continues to grapple with regulatory challenges, the future still looks bright. As we discussed previously, $285 billion is up for grabs for the company in the global ride-hailing market.

In addition to ride-hailing, Waymo has also set its sight on the freight trucking market. The market presents another huge revenue opportunity for the company. The global freight trucking market will likely grow to $6.3 trillion by 2025 from $3.8 trillion in 2016.

Waymo is one of Alphabet’s other bets. The company is also focused on Wing—a delivery drone company. Alphabet counts on Waymo and its other bets to reduce its reliance on Google advertising sales.

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