Investors continue to go wild over Symbotic (SYM 1.62%) -- a provider of robots and accompanying software for warehousing automation. Retail titan Walmart was the biggest customer, at 88% of revenue in 2023. But in a new era of artificial intelligence (AI) wherein "automation" is in high demand, Symbotic has been increasing its backlog of orders with other key retailers, wholesalers, and other consumer goods companies in need of unlocking efficiencies in their supply chains and logistics operations.
After soaring over 300% in 2023 alone, there's hope that Symbotic stock can double again in 2024. The company's growth trajectory would certainly seem to indicate such is possible. However, just underneath the headline financial figures are reasons investors should give serious pause before buying this warehouse robotics stock.
Symbotic's tech and addressable market are very promising
Symbotic provides an end-to-end robotics and automation platform for the massive North American warehousing market (valued at an estimated $144 billion). These warehouses address the complex and costly supply chain of big retailers and wholesalers operating in general merchandise, groceries and food distribution, and apparel.
In other words, a Symbotic system comprises storage compartments, robotic arms, self-driving warehouse bots and forklifts that move boxes, conveyor belts, and more, all stitched together in a unified software platform.
Perhaps you know of Amazon's efforts in similar warehouse robotics and supply chain automation. Symbotic admits Amazon could eventually become a competitor. But much of Amazon's robotics are for its own internal use in its e-commerce empire, not the brick-and-mortar-centric retailers Symbotic serves.
No wonder Walmart has been hot to install Symbotic's systems. In the digital age, stoking higher profit from sprawling networks of operations is a must. A growing number of customers include Albertsons, Target, and privately owned grocery wholesaling and distribution giant C&S Wholesale Grocers (C&S).
After nearly doubling revenue in fiscal 2023 (the 12 months ended in September 2023) to $1.18 billion, Symbotic thinks it has lots of growth left ahead of it. And so do many investors.
Who are your fellow shareholders?
Now, about C&S. Symbotic's management team is intertwined with C&S. In fact, Symbotic's founder, CEO, and chairman of the board is Richard B. Cohen, the billionaire inheritor and current chairman of C&S who grew the wholesaler into a grocery empire over the last several decades.
Symbotic has a dual-class share structure. If you're a small investor reading this article, class A shares represent the stock you own (or are trying to learn about). These shares entitle you to participate in (current) losses at Symbotic but also potential future profits.
Then there's the class V-1 and V-3 shares. Those are noneconomic shares (they don't participate in losses or profit), but hold voting rights for Symbotic corporate decision-making (class V-1 gets one vote per share, and class V-3 gets three). As of the end of fiscal 2023, the Cohen family and various trusts and investment vehicles controlled 89.8% of voting power for Symbotic.
No big deal, right? A highly invested founder is a good thing for a fast-growing start-up. However, I see two potential issues.
First, the class V shares are convertible to class A shares over time. That means lots of future dilution is coming for the financially vested shareholders of class A stock. Currently, Symbotic's market cap is $4.2 billion, a seemingly reasonable value for a fast-growing business that just topped $1 billion in annual sales. However, when including the value of the class V stock (again, currently not participating in Symbotic's losses and profits), Symbotic's market cap is actually nearly $28 billion as of this writing.
Second, other than future dilution of your economic interest in Symbotic's financial performance, complicated billionaire and institutional investor shareholder structures tend not to jive with those of small individual retail investors. Besides being left to wonder whether the Cohen family will steadily cash out of Symbotic stock over time, Japan's investment holding giant SoftBank is another big shareholder (Walmart is a large shareholder, too, by the way).
In fact, SoftBank acquired another warehouse robotics upstart, Berkshire Grey, early in 2023 and, a few months later, struck a new robotics joint venture business with Symbotic, called GreenBox. Symbotic owns just 35% of GreenBox, with SoftBank owning the majority.
In other words, Symbotic is under control of other parties that likely don't have exactly the same long-term investment goals you do.
Another stock double is doubtful anytime soon
All told, while Symbotic's technology and revenue growth trajectory look incredibly promising, this investment looks like it should be placed in the "too hard" file for most individual investors. Unfortunately, Symbotic sales growth and further progress on turning a profit won't simply and automatically translate into comparable stock price performance. I have serious doubts this stock will perform anything remotely similar to its performance in 2023.
