Morgan Stanley estimates Ford reaping $5 billion from Google deal
Ford Motor Co.’s new alliance with Alphabet Inc. unit Google could create an annual revenue stream of $9 billion and generate a gusher of $5 billion in profit for the automaker, according to an estimate by Morgan Stanley.
A new revenue source of that magnitude might double Ford’s $43 billion market capitalization and send its stock soaring to $25, up from less than $11 now, Adam Jonas, Morgan Stanley’s automotive analyst, wrote in a note to investors Tuesday.
Ford has 75 million vehicles on the road worldwide, and if each generated $10 a month in data subscriptions for say, entertainment or retail services, that would create $9 billion in revenue, Jonas calculated. He applied a 55% pretax margin to come up with a potential for the $5 billion in yearly profit.
Ford’s six-year partnership with Google for cloud services and bringing the Android operating system to millions of its vehicles “is a step in the right direction," wrote Jonas, who recently downgraded Ford to underweight. “The industry is in the early innings of a profound shift to recurring revenue measured in data, derived from its hardware ‘real estate’ and monetized through a range of recurring business models."
Ford’s new Chief Executive Officer Jim Farley has said he is attempting to transform the automaker from focusing on a single transaction -- the sale of a car -- to looking for ways to maintain a constant stream of revenue flowing from its customers.
“Our growth as a company will come from not the four walls of the product," Farley said in an interview just before becoming CEO Oct. 1. “It will come from services."Jonas, who currently predicts Ford’s stock will fall to $9, gave the automaker kudos for the Google deal and suggested it could achieve his most optimistic stock-target scenario with more deals like that.
“To achieve our $18 bull case," Jonas wrote, “we believe partnerships and execution with players like Google in these areas are critical."
Ford shares fell by 0.3% to $10.80 at 12:30 p.m. in New York trading. The stock is up about 24% this year.