Symbotic's (SYM 7.64%) stock price plunged 24% on Feb. 6 after the warehouse automation company posted its latest earnings report. For the first quarter of fiscal 2024, which ended on Dec. 30, 2023, its revenue rose 79% year over year to $369 million and matched analysts' expectations. It narrowed its net loss from $68 million to $13 million, or $0.02 per share, which also cleared the consensus forecast by two cents.
Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also improved from negative $16 million to positive $14 million -- which marked its second quarter of positive adjusted EBITDA.
Symbotic's headline numbers looked solid, but its high valuations likely set it up for its post-earnings drop. Even after its recent decline, its stock remains up more than 140% over the past 12 months. Can it head even higher over the next year?
Image source: Getty Images.
What happened to Symbotic over the past year?
Symbotic's fully autonomous robots process pallets and cases in large warehouses. It claims that a $50 million investment in just one of its modules (which includes its robots and software) can generate $250 million in lifetime savings over 25 years.
Symbotic went public by merging with a special purpose acquisition company (SPAC) in June 2022. Walmart (WMT +0.37%) still owns 11% of the company and remains its largest single customer through a long-term deal to automate all 42 of its U.S. regional distribution centers. That deal accounted for 88% of Symbotic's revenue in fiscal 2023 and will last until 2034. Symbotic's other major customers include Target, Albertsons, C&S Wholesale, and GreenBox -- a new warehouse-as-a-service joint venture it formed with its big backer SoftBank (SFTB.Y +4.84%). Symbotic is overwhelmingly dependent on Walmart, but its rapid growth and expanding adjusted EBITDA margins still impressed the bulls over the past year.
|
Metric |
Q1 2023 |
Q2 2023 |
Q3 2023 |
Q4 2023 |
Q1 2024 |
|---|---|---|---|---|---|
|
Revenue Growth (YOY) |
168% |
29% |
78% |
60% |
79% |
|
Adjusted EBITDA Margin |
(7.9%) |
(4.2%) |
(1.1%) |
3.4% |
3.8% |
Data source: Symbotic. YOY = Year-over-year.
Unfortunately, the buying frenzy in artificial intelligence (AI) stocks also significantly inflated Symbotic's valuations. Its enterprise value of $2.6 billion might initially seem cheap at 4 times its fiscal 2023 sales, but its dual-class share structure actually boosts its market capitalization to $21.2 billion -- or 36 times last year's sales.
What will happen to Symbotic over the next year?
For the second quarter, Symbotic expects its revenue to rise 50% to 57% year over year, with a midpoint positive adjusted EBITDA margin of 3.3%. Both estimates were in line with analysts' expectations, but some investors might have been disappointed by its forecast for a sequential drop in adjusted EBITDA margin -- which CFO Carol Hibbard attributed during the conference call to a desire for "flexibility to accommodate increased spending." However, Hibbard also predicted that its profitability would continue to "improve in the second half of the year."
For the full year, analysts expect Symbotic's revenue to rise 48% with an adjusted EBITDA margin of 5.8%. They also expect it to narrow its net loss from $208 million to $6 million. That outlook seems healthy, but Symbotic's stock still doesn't look cheap at 12 times 2024's projected sales and more than 200 times its adjusted EBITDA.
NASDAQ: SYM
Key Data Points
That premium valuation -- along with Symbotic's customer concentration issues, a near-term boost in spending, and stiff competition from Amazon, Ocado, and other warehouse automation players -- might limit its gains over the next 12 months. Elevated interest rates and other macro headwinds could exacerbate that pressure by punishing hyper-growth stocks.
Symbotic might still be a promising long-term investment if it can expand its customer base, scale up its business, and turn profitable, but its stock could underperform the market over the next 12 months as it struggles to grow into its valuations.
