Problems at Symbotic (SYM)
Symbotic (NASDAQ: SYM — $8.89 billion) describes itself as “a revolutionary A.I.-powered supply chain technology company.” In reality, Symbotic is one of many supply chain automation companies that contracts with big distribution centers to automate operations like packing, unpacking, moving, and storing products. Recent executive departures, a nosebleed valuation, the company’s reliance on a handful of customers, and a looming lock-up are among an assortment of issues that should concern shareholders. Symbotic went public in a June 2022 merger with a Softbank-backed SPAC and, like many Softbank-backed companies, The Bear Cave believes Symbotic is more bark than bite and has a long way to fall.
Symbotic’s supply chain automation systems are a complex combination of robots that can deconstruct pallets from inbound freight, move product within a warehouse, construct pallets for outbound freight, and reduce the need for human employees like forklift operators. The Symbotic system is roughly an 18-month process from procurement to full implementation, with costs measuring in the tens of millions of dollars. The company’s warehouse automation systems have primarily been installed at Walmart distribution centers, which have accounted for ~50-80% of the company’s revenue. In its SEC filings, Symbotic says, in part,
“The system uses high-speed, fully autonomous mobile robots that travel up to 25 miles-per-hour, controlled by our A.I.-enabled system software, to move goods through our proprietary buffering structure.”
Other customers of Symbotic include Albertsons, Giant Tiger, and C&S Wholesale Grocers, one of the largest wholesale grocery companies in the country. Symbotic started as an internal project within C&S Wholesale Grocers to automate its internal operations, and C&S’s owner, Rick Cohen, is currently the controlling ~75% owner of Symbotic. In addition, Symbotic’s Chief Strategy Officer and Chief Human Resources Officer are both also employees of C&S Wholesale Grocers. Symbotic’s pitch to investors largely depends on its ability to scale rapidly. In its January 2023 Q1 earnings call, the company’s CFO, Tom Ernst, highlighted,
“We initiated 6 new system deployments during the quarter and, as planned, advanced one system to fully-functional production operations. We now have 22 active system deployments with multiple customers, up from 17 systems last quarter and 9 systems in the first quarter of last year.”
The company also highlights its growth and large market opportunity in its investor deck. In its July 2022 investor presentation, Symbotic compares itself to Tesla, Intuitive Surgical, Shopify, and UiPath.
These ambitions may have helped the company secure a $5.5 billion valuation in its June 2022 SPAC merger with SoftBank-Sponsored SVF Investment Corp 3. Despite never producing an operating profit, shares are up about 60% since the merger and the company has a nearly $9 billion valuation, or ~12x trailing annual revenue of $722 million. In sum, investors believe Symbotic has a dominant product and a huge runway for growth.
The Bear Cave doesn’t.