Artificial intelligence became a hot topic in 2023, and that’s understandable given how much potential AI holds for business transformation. One example is the AI developed by Symbotic (SYM 3.00%), which serves as the brain for the company’s robotics technology.
Symbotic specializes in providing automation systems to businesses that rely on distribution centers for delivery of products to stores. Symbotic installs and operates an army of robots to boost speed and efficiency at these distribution centers. These machines are managed by artificial intelligence to function seamlessly and safely alongside humans.
The company illustrates the transformative power of AI, but that doesn’t mean Symbotic stock is a buy. Many businesses touted AI capabilities this year, but some analysis is required to know if Symbotic is one deserving of your investment dollars. The company completed its fiscal 2023 on Sept. 30, so now is a good time to evaluate if it’s a worthwhile stock to own.
Symbotic’s pros and cons
Symbotic experienced strong year-over-year revenue growth in 2023 as it exceeded $1 billion in sales for the first time. The company ended its fiscal year with $1.2 billion in revenue, an boost of nearly 100% over the prior year’s $593.3 million.
Symbotic achieved excellent revenue growth this year by nearly doubling the number of sites where its robot workforce was installed to 12 locations, up from seven in 2022. The company also added Southern Glazer’s Wine and Spirits, the largest U.S. distributor of alcoholic beverages, as a customer alongside the likes of Walmart, which owns a stake in Symbotic.
But while Symbotic’s top line is growing at a torrid pace, its bottom line is going in the opposite direction. The company suffered a net loss of $207.9 million in fiscal 2023, nearly 50% higher than the prior year’s net loss of $139.1 million.
Moreover, a glance at Symbotic’s balance sheet might verify frightening. The company exited fiscal 2023 with total assets of $1.1 billion, but also total liabilities of $1.1 billion. That’s because Symbotic had deferred revenue of $787.2 million on its fiscal fourth-quarter balance sheet, representing the money it received from customers as payment for future installation of its robotics technology.
Once the installation is executed, that deferred revenue figure will become part of the company’s realized sales. The consideration for investors is that it takes about two years to complete this installation process. That’s a pretty long time before the revenue is recognized.
Symbotic’s other factors to consider
These potential downsides have to be weighed against other factors. It’s common for high-growth tech companies to work at a loss for years, so Symbotic’s lack of profitability isn’t concerning yet.
The substantial deferred revenue is to be expected, since the company is in the process of installing 35 systems, more than double the 17 systems that were in process at the end of the last fiscal year. This indicates Symbotic’s revenue is likely to continue growing as systems come online.
Another positive sign is Symbotic’s growing gross profit, which rose to $189.7 million in fiscal 2023 from $99.6 million the year prior. This tells you the company is capable of expanding its business profitably. It’s now a matter of wrangling costs.
To that end, Symbotic is focusing on cost-effectively scaling its operations to deploy its systems faster while reducing expenses. It’s doing so through improvements in its technology and via partnerships.
Symbotic’s AI now processes a massive 6 terabytes of data per day on average as it makes decisions for each robot’s activities. And advance software enhancements are being made to better efficiency.
In addition, Symbotic is gradually outsourcing the work to deploy its systems to partners, reducing the two-year timeframe for deployments. These partners are ramping up, so the company should start to see rollouts expedite and costs drop over time.
To buy or not to buy Symbotic stock
Symbotic is making a lot of the right moves by bringing in partners and continuing to refine its AI and other technologies. Its revenue growth looks promising given the boost in deployments. And once customers adopt Symbotic’s systems, it’s not easy to switch to a competitor, given the complexities involved in installing the tech.
That said, its stint as a publicly traded company is brief. Symbotic’s IPO took place in 2022. So there’s not a lot of history to gauge its potential for long-term success.
Because the company is still young, it’s a bit of a speculative investment at this stage. Its strong fiscal 2023 suggests it may be worth buying a small stake in the company. But if you’re risk averse, at minimum, this AI-powered company is worth putting on your watch list.
