Symbotic (SYM 0.17%) became one of the market's hottest artificial intelligence (AI) stocks upon its public debut on June 8, 2022. The producer of autonomous warehouse robots went public by merging with a special purpose acquisition company (SPAC), and the combined company's shares opened at $10.54 on the first day before skyrocketing to an all-time high of $63.54 on July 31, 2023. But today Symbotic's stock trades at about $39.
Therefore, a $2,000 investment in Symbotic on its opening trading day would have grown to over $12,000 before pulling back to about $7,400. Let's see why the bulls rushed toward Symbotic, and if its shares can climb even higher in the future.
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What does Symbotic do?
Symbotic automates the processing of pallets and cases in large warehouses with its fully autonomous robots. It says a $50 million investment in just one of its modules can generate $250 million in lifetime savings over a period of 25 years. That makes it a promising play on the global warehouse robotics market, which Straits Research estimates will grow at a compound annual growth rate (CAGR) of 15.5% from 2022 to 2030.
Symbotic's biggest investor is Walmart (WMT 0.13%), which owned more than half of the company prior to its public debut. It still owns about 8% of the current company. Walmart is also Symbotic's top customer and accounted for 87.3% of its total revenue in the first nine months of fiscal 2023 (which ended on June 24). It currently holds a Master Automation Agreement (MAA) with the company to automate all 42 of its regional distribution centers across the U.S. through 2034. Symbotic's other notable customers include Target, Albertsons, and C&S Wholesale Grocers.
Symbotic's second-largest investor is the Japanese conglomerate SoftBank (OTC: SFTB.Y), which owned the SPAC that intially merged with the company. SoftBank notably formed a new warehouse-as-a-service joint venture with Symbotic called GreenBox earlier this year, and the JV will exclusively purchase its automation systems from Symbotic through a $7.5 billion six-year contract that kicks off in fiscal 2024.
Symbotic believes that once the JV's systems are fully installed, they will generate more than $500 million in annual recurring revenue. That fresh revenue stream would be equivalent to nearly half of Symbotic's estimated revenue for fiscal 2023, and significantly reduce its dependence on Walmart. But it usually takes up to 24 months for those systems to become fully operational, so investors shouldn't expect the GreenBox JV to meaningfully boost its revenue over the next two years.
Why did the bulls fall in love with Symbotic?
The bulls fell in love with Symbotic for three reasons. First, the market's demand for automated warehouse robots should continue rising as big retailers handle larger quantities of products. Second, rising labor costs and safety concerns should drive more companies to replace their human warehouse workers with automated warehouse robots.
Lastly, Symbotic is growing at a faster rate than the warehouse automation market. Its revenue surged 136% in fiscal 2022 (which ended last September), and analysts expect its top line to grow at a CAGR of 61% from fiscal 2022 to fiscal 2025.
Unlike many other SPAC-backed companies, Symbotic didn't provide any ambitious multi-year growth forecasts during its pre-merger presentation. That conservative approach prevented it from disappointing its investors with broken promises.
Symbotic isn't profitable yet, but it expects its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to turn positive in the fourth quarter of fiscal 2023 and stay profitable on that basis throughout fiscal 2024. Analysts expect its adjusted EBITDA to grow another 163% to $378 million in fiscal 2025. Based on those expectations and its current enterprise value of $2.6 billion, Symbotic's stock still looks reasonably valued at 18 times next year's adjusted EBITDA.
Does Symbotic's stock have more room to run?
Symbotic seems to have a bright future, but it still faces competition from start-ups like Locus Robotics and Fetch Robotics, Ocado's 6 River Systems, and Amazon's growing army of warehouse robots. There might be enough room for all of these companies to flourish without trampling each other, but Symbotic needs to reduce its dependence on Walmart and SoftBank's new JV to prove that it has long-term staying power in this expanding and evolving market.
I believe Symbotic still has room to run, but investors should be well aware of its customer concentration issues and competitive threats. If it overcomes those challenges, I wouldn't be surprised if it generated even bigger multibagger gains.
