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Ford's stock could surge 127% if the company carves out new revenue stream from data subscriptions

Isabelle Lee
  • Ford stock could surge 127% if the company is able to carve out a new revenue stream from data subscriptions, Morgan Stanley says.
  • The prediction comes after Ford announced it is entering a six-year deal with Google’s parent company Alphabet to enhance in-vehicle connectivity. 
  • Morgan Stanley says if each vehicle could generate $10 a month of data subscriptions, this would create around $9 billion in recurring revenue.

Ford stock could surge 127% if the company is able to carve out a new revenue stream from data subscriptions, Morgan Stanley says.

Shares of the automaker closed at $10.88 Tuesday. 

Morgan Stanley’s prediction comes after Ford announced it is entering a six-year deal worth hundreds of millions of dollars with Alphabet’s Google on Monday.

The automaker said it will be tapping into the software, artificial intelligence, and cloud computing offered by the tech giant to manage Ford’s growing in-vehicle connectivity. The partnership would also enable Ford and Lincoln vehicles to operate features such as Google Play, Google Maps, and Google Assistant beginning 2023.

Ford also named Google Cloud as its preferred cloud provider for its entire ecosystem.

Morgan Stanley analysts led by Adam Jonas said this alliance has the potential to double Ford’s market capitalization to nearly  $100 billion, or $25 per share before discounting. In a note to clients, Jonas applied a 20x EV/EBITDA multiple to the Dearborn, Michigan-based company.

To date, Ford has around 75 million vehicles on the road across the world. According to Jonas, if each vehicle could just generate $10 a month of data subscriptions, this would create around $9 billion in recurring revenue. He also calculated a $5 billion yearly profit by applying a 55% EBITDA margin.

Morgan Stanley recently downgraded Ford to Underweight, reiterating its $9 price target. However, the investment bank believes the company’s partnership with Google “is a step in the right direction” and will help achieve its $18 bull case. 

The partnership with Google is among the changes executed by Ford’s Jim Farley who became CEO in October 2020. 

“One of the most important parts of our strategy is to partner,” Farley told CNBC. “That means that we have to get out of the business of doing generic things that do not add value, like navigation systems and a lot of the in-car entertainment experience.”

Read the original article on Business Insider

This article was written by [email protected] (Isabelle Lee) from Business Insider and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to [email protected].

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