The debut of OpenAI’s ChatGPT in late 2022 helped to kick off an artificial intelligence (AI) frenzy. Soon after, plenty of other AI companies rushed to tout their various AI strengths, hoping to attract investor attention. But which AI-related ventures will be worthwhile investments over the long haul?
One company investors might want to consider is robotics specialist Symbotic (SYM 2.15%). It provides businesses with AI-controlled machinery to autonomously process freight at warehouses. This technology can provide retailers with efficiencies similar to those Amazon achieves with its own robots.
AI-managed mechanical workers are part of a growing industry. The global warehouse automation market was worth over $23 billion in 2023, and it is forecast to reach $41 billion by 2027.
So far in 2024 (through the week ending Dec. 6), Symbotic shares were trading down about 45%, creating a potential buying opportunity. Here’s a look at Symbotic to determine if it’s a good long-term investment to capitalize on the secular trend of AI.
The strengths of Symbotic’s business
Symbotic’s warehouse automation platform is impressive. AI enables the company’s robots to continuously learn as they work, improving efficiency and reducing mistakes. Its machines are also equipped with tech that allows them to “see,” so they can identify when stacks of boxes are tilted or otherwise not correctly placed.
That strong technology enabled it to capture customers such as retail giants Walmart and Target, and grocery chain Albertsons. Its agreement with Walmart runs to 2034 as it implements its platform in the retailer’s 42 regional distribution centers.
Overall, its business is in growth mode. In its 2024 fiscal year, ended Sept. 28, the company’s revenue rose 52% year over year to $1.8 billion.
To continue this, it partnered with SoftBank Group on a joint venture called GreenBox last year. It focuses on warehouse-as-a-service opportunities, essentially renting out warehouse space equipped with Symbotic’s automation.
With GreenBox, Symbotic is looking to deploy systems globally. Currently, the company generates all its revenue in North America, so expanding internationally is one of its goals. Its first foray internationally began in October with a customer in Mexico.
Factors to consider about Symbotic
Although revenue is growing rapidly, the 2024 fiscal year ended with a net loss of $84.7 million. Even so, that’s a substantial drop from the prior year’s net loss of $207.9 million.
What’s more, the company may have turned a corner on profitability. In its fiscal fourth quarter, Symbotic achieved net income of $16 million, its first profitable quarter. This is a key milestone considering it’s not cheap to deliver an army of robots. In achieving fiscal 2024 revenue of $1.8 billion, the company accrued expenses of $1.5 billion.
Another aspect to understand about Symbotic’s business is its balance sheet. The company finished the fourth quarter with total assets of $1.6 billion and total liabilities of $1.2 billion. But among the liabilities was $805.5 million in deferred revenue. This represents advanced payments received for the systems it is committed to delivering to its customers. Once it fulfills these orders, the deferred revenue can be recognized as sales.
Right now, the company is highly dependent on one customer, Walmart, for its revenue. The retailer was responsible for 87% of Symbotic’s sales in fiscal 2024. It must reduce its reliance on Walmart before fulfilling its current contractual obligations, or revenue growth may stagnate. This is where GreenBox serves as a key player in Symbotic’s long-term sales growth.
Weighing whether to invest
Deciding to buy Symbotic stock requires weighing many considerations. The strong sales expansion shows its AI-controlled robotics technology is succeeding. Now, the question is whether it can extend its profitable fourth quarter into its 2025 fiscal year.
Another unknown is how well the GreenBox venture will perform over time. In the fourth quarter, Symbotic began platform implementation in a second GreenBox warehouse.
The stock sank recently after the company revised downward its fiscal 2025 first-quarter outlook. Originally, the business expected $495 million to $515 million in sales; now it anticipates first-quarter revenue of $480 million to $500 million, due to cost overruns with some of its platform deployments. Even so, the new estimate remains a double-digit increase over year-ago sales of $359.9 million.
As a relatively young public company, with its initial public offering taking place in 2022, there’s scant history to assess how Symbotic can perform over the long term. For example, will the aforementioned cost overruns become a trend? If so, that could prove concerning if revenue is affected.
Consequently, you may want to wait to see how the company performs over the next couple of quarters before deciding to invest. If it continues to grow revenue, remain profitable, and acquire new customers, then it may be worthwhile.
For now, because of the uncertainties in its business, Symbotic is an AI stock only for those with a high risk tolerance.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Robert Izquierdo has positions in Amazon, Symbotic, Target, and Walmart. The Motley Fool has positions in and recommends Amazon, Target, and Walmart. The Motley Fool has a disclosure policy.
