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At the end of 2019, Morgan Stanley valued it at $ 105 billion. The valuation was based on Waymo technology. Waymo is miles ahead of other self-driving efforts, as Google has been working on it for a decade.
What Waymo has been missing, despite fierce opposition from carmakers, is a strategy to enter the market. Waymo has bought cars from other companies, equipped them with their technical and ongoing experiments. It has not come close to generating significant revenue, let alone profit.
That is what the new financing is intended to provide.
For investors, it’s a sideshow. The $ 930 billion alphabet has nothing to do with Waymo. This is about the company’s $ 161 billion in revenue from 2019 and its ability to take 20% of it to the net profit line. This is about the company’s 18% annual growth rate.
What makes venture capital
The real headline here may be the appointment of Egon Durban, the 46-year-old co-CEO of Silver Lake Investments, to the Waymo board.
Durban has been in Silver Lake for 20 years. He led his investment in 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 large partners. And he knows how to discipline management.
Durban will be joined by a second outsider from the Canadian Pension Board, who also invested in the financing round. So did the sovereign wealth fund in Abu Dhabi, Andreessen Horowitz, Magna International (NYSE: MGA) and car dealer AutoNation (NYSE: AN). The alphabet itself is also part of the round.
The Waymo problem
While Morgan Stanley’s valuation of Waymo last year fell by 40%, it is still more than any other than two other automakers, Toyota (NYSE: TM) and Tesla (NASDAQ: TSLA). This makes it difficult to find a manufacturing agreement, as the newcomer is worth more than someone established.
The most important question is when and how to scale up production. Should Waymo even be involved in incinerators with all their complexity? Should it wait until it can find a partner that mass-produces electric vehicles? Or should it collaborate or create cars yourself?
The questions have stopped Waymo even when it has scaled up its experiments. Many workers are temps or entrepreneurs who see themselves as second-class employees. This can cause problems. One got so angry that he had a Waymo vehicle crash.
Which way, Mo?
These are problems that money does not even solve. They require strategy, planning and implementation. These are things that John Krafcik, who has run the unit since 2015, has not been able to deliver.
The venture investment represents the cruel cliché, a turning point. Decisions must be made about what to produce, how to produce it and how to get it to market.
Waymo has to decide whether to buy a car company, build its own manufacturing facility or just sell its technology.
The conclusion on Google Stock
The value of autonomy, in relation to the value of a car and the value of transport, has always been a difficult formula. Waymo’s soaring valuation is a mirage, a set of assumptions from bankers that do not reflect what it has been able to do in the market.
Google has not been able to solve this equation. The hope is that Silver Lake and its financial partners will do the same.
If Waymo can justify its valuation, it could give the Google stock a lift. But that elevator, provided it ever comes, will be small.
Dana Blankenhorn has been a finance 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 in the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. At the time of writing, he owned shares in MSFT.