Symbotic Shares Down 37%—Is It Time for Bravery or Caution?

Key Points

• Symbotic makes robotic warehouse systems capable of greatly increasing workforce efficiency. As the cost of labor rises, Symbotic has a strong value proposition for customers.
• However, Symbotic's accounting practices have raised red flags.
• Is Symbotic poised to quickly overcome issues that have put pressure on the stock to allow shares to rebound?

Markets have hit shares of robotic warehouse systems company Symbotic NASDAQ: SYM hard over the past 52 weeks. Shares of the industrials stock have lost nearly 37% of their value as of the Feb. 13 close. Retail giant Walmart NYSE: WMT is a huge Symbotic customer, a testament to the company’s relevance. But are shares of this cutting-edge robotics company ready to rebound, or is there still significant risk? I’ll dive deep into the company’s recent earnings report and analyze important issues surrounding it to answer that question.

SYM: Revenue Grows by 35%; Guidance Lags Expectations

Symbotic reported slightly lower-than-expected revenues of $487 million in calendar Q4. This was a growth rate of 35% and missed forecasts by around $3 million. On a non-adjusted basis, the company lost $0.03 per share, larger than the $0.02 loss that Wall Street projected. However, one of the larger misses came in the company’s revenue guidance for calendar Q1. It forecasts sales of $520 million, significantly below the $533 million target analysts set. This guidance equates to a growth rate of 32%.

This figure considers the company’s restatement of financial results that it had to undergo. The company’s Nov. 27 press release related to this event caused shares to sell off 35%. The company had to greatly cut its reported fiscal year 2024 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). The figure dropped by $30 million to $40 million from the previous $96 million. At the midpoint, that is a drop of nearly 37%.

Addressing Important Issues: Accounting and Deployment Time

The massive sell-off surrounding the accounting issues makes sense. The magnitude of the drop in EBITDA was huge. While it doesn’t mean that the company is doing anything nefarious, it is reasonable to suggest there is a level of incompetence at the firm. Accounting rules are complex. Symbotic's intricate systems add to that complexity, but this doesn’t excuse them. Another important consideration is that the drop in EBITDA was directly a cause of an overstatement of revenue. In relative terms, the company’s $34 million revenue restatement decreased its annual revenue by less than 2%. That’s certainly not an insignificant figure. But, it is much less worrisome than the massive +30% drop in adjusted EBITDA it resulted in.

Symbotic’s revenue growth and demand for its products remain strong. It still maintains a contracted backlog of $22.4 billion, over 12x the company's revenue in 2024. The company has made progress in installing its systems profitably, increasing its gross margin over time. However, this is only one side of the equation. A big question around Symbotic is how fast it can deploy its complex robotic systems in customers' warehouses. Only after Symbotic installs systems or meets certain milestones can it recognize its backlog as revenue.

Improving installation speed and profitability is very important. It gives the company a sticky product to create other revenue sources. Because they are so expensive for customers to implement, switching to a competitor once installed doesn't make sense. Thus, Symbotic can expand its suite of services over time, generating more recurring revenue per customer. There is already some evidence of this happening. Its software revenue more than doubled last quarter and still makes up a very small percentage of the overall business.

Deployment speed is still the main hurdle for the company’s growth. It affects its ability to support its high valuation. Symbotic stated that its deployments still average around 24 months to complete. In its Q1 2024 earnings call, the company noted a record deployment speed of 20 months. However, it did not say that this was the average for the entire company. Symbotic is working on cutting deployment times. However, large and complex projects have kept the average at 24 months. At the very least, deployment time reductions seem to have stalled, and it is hard to suggest that they will improve substantially in 2025.

SYM: Patience Is the Way Forward

Ultimately, I’m bullish on the overall value proposition behind Symbotic’s business. However, the accounting and lack of deployment time improvement make it prudent to see more information emerge. Per the firm’s Form 10-K filing, it is under investigation by the Securities and Exchange Commission (SEC). There are also several class action lawsuits against it. These may lead to more clarity around its accounting practices. Additionally, seeing more evidence of improvement around the company’s deployment time is critical.