In late 2019 Morgan Stanley valued it at $105 billion. The valuation was based on Waymo technology. Waymo is miles ahead of other self-driving efforts, because Google has been working on it for a decade.
What Waymo has lacked, in the face of fierce opposition from auto makers, is a go-to-market strategy. Waymo has been buying cars from other companies, outfitting them with its tech and running experiments. It hasn’t gotten close to generating substantial revenue, let alone profit.
That’s what the new funding is meant to provide.
For investors, it’s a sideshow. Alphabet’s valuation of $930 billion has nothing to do with Waymo. It’s about the company’s $161 billion in 2019 revenue, and its ability to bring 20% of that to the net income line. It’s about the company’s 18% annual growth rate.
What Venture Capital Does
Durban has been with Silver Lake for 20 years. He led its investment into Dell Technologies (NYSE:DELL) and Skype, now part of Microsoft (NASDAQ:MSFT). He knows how to turn investment capital into money, how to negotiate with big partners. And he knows how to discipline management.
Durban will be joined by a second outsider from the Canadian Pension Board, which also invested in the funding round. So did the sovereign wealth fund of Abu Dhabi, Andreessen Horowitz, Magna International (NYSE:MGA) and car retailer AutoNation (NYSE:AN). Alphabet itself is also part of the round.
The Waymo Problem
While last year’s Morgan Stanley valuation on Waymo was a 40% cut, it’s still more than all but two other car makers, Toyota (NYSE:TM) and Tesla (NASDAQ:TSLA). This makes finding a manufacturing deal tough, since the newcomer is worth more than any incumbent.
The most important question is when, and how, to scale up manufacturing. Should Waymo even be involved in internal combustion cars, with all their complexity? Should it wait until it can find a partner who mass produces electric vehicles? Or should it partner or make cars itself?
The questions have stalled Waymo even while it has scaled up its experiments. Many workers are temps or contractors, who see themselves as second-class employees. This can cause problems. One became so angry he caused a Waymo vehicle to crash.
Which Way, Mo?
These are problems money alone won’t solve. They require strategy, planning and execution. These are things John Krafcik, who has been running the unit since 2015, has been unable to deliver.
The venture investment represents that hoary cliché, a turning point. Decisions must be made on what to produce, how to produce it and how to get it to market.
Waymo must decide whether to buy a car company, build its own manufacturing plant or just sell its technology.
The Bottom Line on Google Stock
The value of autonomy, relative to the value of a car and the value of transportation, has always been a hard formula. Waymo’s sky-high valuation is a mirage, a set of assumptions by bankers that doesn’t reflect what it has been able to do in the marketplace.
Google hasn’t been able to solve this equation. The hope is that Silver Lake and its financial partners will do that.
If Waymo can justify its valuation, it might give Google stock a lift. But that lift, assuming it ever comes, will be a small one.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT.