Symbotic Inc. (SYM, Financial) is an American company that specializes in automation technology used in supply chain operations. The company uses artificial intelligence and robotics to create a system that can store, move and sort goods with high speed, accuracy and efficiency. It works with some of the largest retail, wholesale and food and beverage companies in the world, helping them to optimize their distribution operations and reduce costs.
On July 31, its stock surged more than 50% after the company reported impressive numbers for the third quarter of 2023. The company achieved record-breaking sales and revealed a backlog of orders amounting to $23 billion.
Although Symbotic is growing, investors may have to wait for a better opportunity to invest given the substantial expansion in its valuation multiples on the back of an over 400% gain so far this year.
Progress and growth opportunities
The bright prospects of the smart warehousing market promise an exciting future for Symbotic, with SkyQuest projecting this market will grow to $31.71 billion by 2030 at an impressive compounded annual rate of 11.5%. Symbotic is making progress as a frontrunner in artificial intelligence-enabled robotics technology for supply chain operations. During the third fiscal quarter, the company reported revenue of $312 million, up 77% year over year.
Challenges in the supply chain industry
Although the company is not profitable yet, the smart warehouse industry is still in its nascent stage and holds great growth potential. Recent research highlights a key growth driver in the market, which revolves around labor issues that continue to affect supply chain operations on a global scale. A study by Ivanti found that 52% of supply chain managers are facing challenges related to workforce training time, while 50% are troubled by a high turnover rate. Additionally, 41% of them are concerned about the pressing need for digital upskilling.
According to Datex, the labor shortage in manufacturing workers, coupled with a skills gap, is expected to result in significant costs, with an estimated $1 trillion in 2030 alone and 2.1 million jobs left unfilled. The National Association of Manufacturers confirmed that talent acquisition, training and retention remain primary challenges plaguing the industry. The Covid-19 pandemic disrupted the global supply chain as well.
Smart warehousing as a solution
Smart warehousing is emerging as a compelling solution to address these labor-related hurdles, presenting ample opportunities for companies to capitalize on this growing sector. It utilizes advanced technologies and software to optimize the movement of goods and services from suppliers to customers.
While automation in supply chains is nothing new, it has witnessed remarkable progress with the integration of artificial intelligence. According to a McKinsey report, leading manufacturers in warehouse automation have experienced impressive revenue growth with the use of this technology, averaging 15% to 20% annually since 2014.
The advantages are manifold, as it can effectively reduce costs, enhance efficiency, elevate customer satisfaction and boost overall profitability. Smart warehousing with the use of AI can streamline various tasks, including ordering, inventory management, tracking, delivery and invoicing, minimizing the risk of human errors and delays, which can impede service quality and timeliness. Additionally, it offers real-time data and analytics on supply chain status and performance, enabling improved decision-making and problem-solving.
Features of Symbotic's systems
Source: Investor presentation
Symbotic has established a formidable economic moat through its proprietary software, which optimizes various crucial operations, including bot traffic, storage, lifts and cells. The company's outbound fulfillment method and palletizing technology are key differentiators, allowing for the seamless construction of high cube pallets with minimal interruptions. The intelligent and autonomous bots play a crucial role in ensuring efficient case movement from inbound lifts to storage, as well as precise selection and delivery to outbound buffers. Moreover, Symbotic's RAID-based buffering and system-of-systems architecture further enhance the efficiency and reliability of its operations.
Innovation and growth strategy
An impressive portfolio of over 490 patents (issued and pending) stands as a testament to Symbotic's commitment to innovation, backed by a cumulative development cost exceeding $1 billion and over 16 years of dedicated research and development. These investments have enabled the company to position itself at the forefront of advanced warehouse automation technology.
To ensure sustained growth and market dominance, Symbotic has devised a comprehensive long-term growth strategy focused on maximizing its presence among existing customers, which has seen notable progress as the company has already succeeded in deepening its partnerships with major players in the industry.
Source: Earnings presentation
Partnerships and expansion
C&S Wholesale Grocers, the largest U.S. wholesale grocery distributor, stands as an initial adopter and key development partner for Symbotic. As more sites are under consideration, this collaboration holds immense potential to reshape the wholesale grocery distribution landscape. Albertsons Companies Inc. (ACI, Financial) is also utilizing the company's technology in two live distribution centers, with additional systems already ordered. It took only six months from the start of development to acceptance, which speaks volumes about the efficiency and effectiveness of its solutions.
Walmart Inc. (WMT, Financial), the world's largest company by revenue, has also been a crucial development partner for the company for over four years. The successful full retrofit commitment achieved by Symbotic has set industry standards for SKU counts, further solidifying its position as an industry leader.
The company has set its sights on expanding its customer base within existing verticals, which includes grocery and general merchandise. Symbotic has partnered with Associated Food Stores, a leading provider of groceries and various goods to about 500 independent retailers across nine intermountain states. This collaboration aims to incorporate its advanced AI-powered robotic warehouse automation technology into Associated Food’s Utah distribution center to enhance overall supply management and streamline product delivery to stores.
In a bold move to capitalize on emerging opportunities, the company has also identified new verticals to explore. The foray into apparel, consumer packaged goods and home improvement represent a strategic expansion that aligns with Symbotic's core competencies. By venturing into these new markets, the company aims to tap into untapped potential and establish itself as a leading player in diverse industries.
GreenBox Systems joint venture
Symbotic recently established a joint venture with SoftBank Group (TSE:9984, Financial) called GreenBox Systems LLC in a strategic move to harness the potential of the warehouse-as-a-service market. Leveraging Symbotic's advanced AI and automation technology within single and multi-tenant facilities, GreenBox seeks to revolutionize supply chain operations to enhance efficiency, SKU agility, scalability and density across the supply chain.
The agreement involves Symbotic ordering systems from GreenBox over six years, commencing in fiscal 2024, to deploy them on a larger scale across its warehouse network compared to the currently installed base systems. The potential outcome of GreenBox's operations is substantial, with an expected annual recurring revenue of over $500 million for Symbotic. The alliance results in SoftBank holding a 65% stake and Symbotic retaining a 35% ownership in GreenBox. To fuel GreenBox's initial operations and system purchases, an initial capital contribution of $100 million will be shared proportionally between Symbotic and SoftBank.
Valuation is a concern
With Symbotic's stock surging more than 400% this year, its forward price-sales ratio has expanded to 4.4 compared to the industrial sector average of 1.4. The company has the potential to be a disruptive force in this sector, which calls for premium valuation multiples. That being said, the current valuation does not seem to account for the fact that Symbotic's non-recurring revenue streams may come under pressure with increasing competition. The company's operating margins are also dismal, which poses another risk.
Takeaway
Symbotic stands at the forefront of warehouse automation technology, utilizing artificial intelligence and robotics to optimize supply chain operations with unmatched speed and precision. The company expects positive Ebitda in the fourth quarter, but is years away from GAAP profitability.
Symbotic is likely to grow at a stellar pace in the coming years, but there seems to be no margin of safety currently.
