Symbotic's (SYM 1.62%) stock has more than tripled since it went public by merging with a special purpose acquisition company (SPAC) last June. The maker of automated warehouse robots impressed investors for three reasons:
- It was backed by the Japanese conglomerate SoftBank (SFTB.Y 1.75%) and the retail giant Walmart (WMT -0.08%).
- It was growing rapidly.
- It was poised to disrupt the manually operated and mechanized distribution methods of traditional fulfillment centers.
Symbotic's revenue rose 136% in fiscal 2022 (which ended in September 2022), and analysts expect its top line to grow at a compound annual growth rate (CAGR) of 61% from 2022 to 2025. Those growth rates are impressive for a stock that trades at just 2x this year's sales -- but smart investors should still keep three lesser-known facts in mind.
Image source: Getty Images.
1. Symbotic is heavily dependent on Walmart
Symbotic has sold its warehouse robots to big customers like Walmart, Target, Albertsons, and C&S Wholesale Grocers. However, the company still generates most of its revenue from Walmart, which owned more than 60% of the company prior to its merger with SoftBank's SPAC last year.
At the end of fiscal 2022, Symbotic said it had a backlog of $11.1 billion and expected to deliver and install all of those systems over the following eight years. However, it said the "substantial majority" of that backlog came from Walmart, which previously signed a Master Automation Agreement (MAA) with the company to automate all 42 of its regional distribution centers across the United States over the next few years.
In the first nine months of fiscal 2023, Symbotic said a single customer accounted for 87.3% of its total revenue. It didn't name that customer in its latest 10-Q filing, but it's clearly Walmart.
That customer concentration is worrisome because it could prevent the company from locking in more clients to widen its moat. On the bright side, Symbotic's MAA with Walmart won't expire until 2034 -- so it has plenty of time to expand its business and diversify its customer base away from the retail giant.
2. Symbotic's future growth hinges on a new joint venture with SoftBank
Earlier this year, Symbotic formed a new joint venture (JV) with SoftBank called GreenBox. Symbotic owns 35% of this JV, while SoftBank's subsidiary owns the remaining 65%. This new warehouse-as-a-service JV will exclusively purchase its automation systems from Symbotic through a $7.5 billion contract.
GreenBox will order Symbotic's systems over a six-year period that will start in fiscal 2024. Once those systems are installed and fully operational, they could generate over $500 million in annual recurring revenue for Symbotic.
That would represent nearly half of its estimated revenue for fiscal 2023, but it usually takes up to 24 months for Symbotic's systems to become fully operational. Therefore, the GreenBox JV could eventually diversify Symbotic's top line away from Walmart, but we probably won't see it generate any meaningful revenue in fiscal 2023 or fiscal 2024.
Symbotic's decision to diversify away from a partnership with one of its top investors with a JV with its other top investor also suggests it isn't attracting that much interest from other big retailers. That's troubling because Symbotic isn't the only warehouse robot maker in town. Amazon acquired several warehouse robot makers in recent years, Ocado bought the warehouse automation firm 6 River Systems from Shopify earlier this year, and start-ups like Locus Robotics and Fetch Robotics are still expanding across the fertile market.
3. Symbotic's insiders are net sellers
When we consider that Symbotic still relies heavily on its two largest investors for most of its revenue, its business looks a lot less disruptive. That's probably why its insiders sold nearly 50% as many shares as they bought over the past 12 months.
That chilly insider sentiment also coincides with the ongoing dilution of its own shares. Between the first nine months of fiscal 2022 and fiscal 2023, the company's number of weighted-average shares rose 19% year over year as stock-based compensation expenses grew more than 12-fold and gobbled up 16% of its total revenue.
Do these issues break the bull case for Symbotic?
Symbotic's investors should pay attention to these three issues, but I don't think they completely derail the bullish case. After all, about 80% of U.S. warehouses still use manually operated distribution methods -- which are generally pricier, have higher damage rates, and cause more employee injuries than fully automated solutions.
While Symbotic is small and overwhelmingly dependent on its two biggest backers, it could still have plenty of room to grow in this nascent market. It isn't surprising to see its insiders take some profits after the stock's multibagger gains over the past year, but I believe its shares could head higher over the long term as it expands and evolves.
