Autonomous Delivery Expansion And AI Data Scale Will Reshape Urban Logistics

Catalysts

About Serve Robotics

Serve Robotics operates an autonomous sidewalk delivery network using a growing fleet of electric robots across multiple U.S. cities.

What are the underlying business or industry changes driving this perspective?

• Expansion of online and on demand ordering, together with restaurant demand for CapEx light and labor light capacity, supports higher utilization of Serve’s fleet, which can feed into fleet revenue and overall revenue growth.
• Broad adoption of quieter, cleaner and less congested city transport solutions aligns with Serve’s small electric vehicles and may support easier city approvals and route density, which can influence revenue per city and long run operating margins.
• Scale effects from crossing 1,000 robots deployed, targeting 2,000 robots, and operating in more cities create a data advantage that can reduce intervention rates and raise average speeds. These are key inputs for improving unit economics and gross margin.
• Integration of Vayu Robotics and an AI focused autonomy stack allows Serve to convert more real world miles into better models faster. Management links this to higher autonomous run times and greater efficiency, with potential impact on operating costs and EBITDA losses over time.
• Growing partnerships with platforms like Uber and DoorDash and national restaurant brands increase order funnel and potential route sharing for each robot. Management positions this as a way to raise fleet revenue, increase branding revenue opportunities and support software and data revenues.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Serve Robotics's revenue will grow by 295.0% annually over the next 3 years.
• Analysts are not forecasting that Serve Robotics will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Serve Robotics's profit margin will increase from -4124.9% to the average US Hospitality industry of 8.1% in 3 years.
• If Serve Robotics's profit margin were to converge on the industry average, you could expect earnings to reach $9.7 million (and earnings per share of $0.11) by about January 2029, up from $-80.2 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 226.0x on those 2029 earnings, up from -11.8x today. This future PE is greater than the current PE for the US Hospitality industry at 21.8x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.3%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Serve is building an autonomous delivery model that relies heavily on continued growth in online and on demand ordering. Any slowdown or shift in consumer behavior toward in person dining or alternative fulfillment channels could limit order volumes flowing through Uber, DoorDash and restaurant partners, which would cap fleet utilization and revenue.
• The company is currently investing heavily in expansion and R&D, with GAAP operating expenses of US$30.4 million in the quarter and adjusted EBITDA loss of US$24.9 million. If efficiency gains from autonomy, higher robot utilization and software or data revenues do not materialize as management expects, operating losses and net margins could remain under pressure for longer than investors anticipate.
• The long term thesis assumes cities will keep supporting small electric delivery vehicles. Tighter regulation, permitting delays or public pushback in key markets such as Chicago, Atlanta, Miami and future metros could constrain route density and new market launches, limiting revenue growth and delaying any improvement in unit economics and earnings.
• Serve is relying on large partners and an Autonomy as a Service model. Customer concentration with Uber, DoorDash and a few national restaurant brands, together with early stage discussions around software and data sales, means that changes in partner strategy, pricing pressure or slower than expected adoption of paid software and data products could weigh on fleet revenue, high margin software revenue and overall earnings potential.
• The company’s plan to scale from around 2,000 robots toward much higher deployment over time, including the integration of acquisitions like Vayu, depends on continued access to capital and disciplined cost control. Any difficulty raising funds on acceptable terms or cost overruns on CapEx of US$11 million per quarter and above could strain the cash balance of US$211 million plus the recent US$100 million stock sale, which would affect Serve’s ability to invest for growth and improve net margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $18.86 for Serve Robotics based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $26.0, and the most bearish reporting a price target of just $15.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $119.8 million, earnings will come to $9.7 million, and it would be trading on a PE ratio of 226.0x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of $12.68, the analyst price target of $18.86 is 32.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.