Research report: Walmart Inc. (NYSE: WMT) and Symbotic Inc. (NASDAQ: SYM)

We are short Walmart (NYSE: WMT) and Symbotic (NASDAQ: SYM).  In our opinion, Walmart exposed itself to significant business risk by awarding a $12 billion contract to a publicly-listed robotics start-up called Symbotic. Symbotic is a self-proclaimed “A.I.-powered robotic technology platform” that sells warehouse automation and so-called automated storage & retrieval system (“ASRS”). Walmart and Symbotic agreed on retrofitting Walmart’s 42 regional distribution centers (“RDC”) and automating its fulfillment centers. But there is a catch. In fact, there are several. In our opinion, Symbotic is not the cutting-edge company it claims to be. Its products don’t offer any innovation, lack a competitive edge, and are still in prototype status. Nevertheless, the prototypes will be rolled out in all of Walmart’s RDC – 28 of 42 are already being deployed at this moment. We believe the awarding of this contract to Symbotic was ill-advised and it appears that there has been miserliness, a lack of proper due diligence by Walmart, and a major conflict of interest. On its Investor Day in April, Walmart highlighted that automating the distribution and fulfillment centers is key to growing its revenue and improving margins. It is a key part of the company’s US omnichannel strategy. For this $12bn centerpiece Walmart chose a newcomer with no track record of delivering such systems. Investor’s expectations about the execution of the strategy are reflected in elevated Walmart’s current P/E multiple of around 30x and NTM P/E multiple of about 24x. In addition, we believe the significant share buybacks of the past years support the expansion in multiples. The P/E multiple deviates about 40% from Walmart’s past average of about 17x and is only topped by the 36x P/E multiple during the dot-com bubble. We think choosing Symbotic will have significant negative consequences for Walmart’s omnichannel strategy. Therefore, we think that a lower valuation at a 20x NTM P/E multiple is more appropriate: $124.2 per share. In addition, we believe Symbotic’s stock is uninvestable.

In our opinion,

  • Rick Cohen, the company’s CEO, trash-talks competitors and their products on several occasions, claims to be a top expert on warehouse automation, and took Symbotic public because of his employees.
  • He openly acknowledges that he is happy that his employees think the stock will go up forever and that they are supposed to make it go up forever.
  • Despite repeated claims, Rick Cohen is not the founder of Symbotic but it’s an innovator called John Lert, Rick Cohen bought the company from John Lert, who then founded Alert Innovation which was sold to Walmart in 2022.
  • Symbotic’s products are not as innovative and cutting-edge as the company claims, most of them are still in field-testing and prototypes, with management disclosing that there are not finished, e.g. mixed-case palletization is only at 90% and the company has been working on it since 2014.
  • Prior to the Walmart contract, the company sold only four systems since 2007, one to Target in 2014, two to C&S Wholesale Grocers in 2016, and one to Giant Tiger in 2018.
  • Despite the innovative technology and claimed economic benefits for Symbotic’s customers, no customers rolled out Symbotic’s systems in all of their distribution centers.
  • Despite a claim made by Rick Cohen in the Wall Street Journal in 2016, C&S Wholesale Grocer’s never installed Symbotic’s systems in all 33 distribution centers.
  • Symbotic’s management consists of loyal confederates of the company’s CEO and most of them lack experience in warehouse automation or robotics, the current CTO is C&S Wholesale Grocers’ former IT head and the only automation-savvy executive, Mike Dunn, has sold two-thirds of his shares over a six-month period.
  • Most experienced employees don’t hang around long enough and most recently Symbotic’s head of machine learning quit to go work at Alert Innovation.
  • In the past three years, Symbotic’s chief executive officer, chief human resources officer, chief technology officer, head of machine learning and chief accounting officer quit.
  • Symbotic lacks the expertise to fulfill the Walmart contract and hired dozens of third-party contractors to develop its products, manufacture them, deploy them at Walmart’s distribution centers, and do maintenance support.
  • Symbotic is bankrolled by Walmart and without any advance payments from Walmart, Symbotic would not be able to operate. The company was never profitable, accumulated a deficit of more than $1.2 billion, and prior to the Walmart contract had an annualized run rate of $25 million.
  • The company was awarded an alleged $12 billion contract to retrofit Walmart’s regional distribution centers but Walmart never confired the size. However, official documents filed with local authorities indicate that the backlog has a fair value of only $3.95 billion.
  • Because Walmart accounts for most of Symbotic’s revenue and the company pressuring in a faster rollout and due to a lack of experience Symbotic hired third-party engineering companies to fulfill the contract, all while this raises Symbotic’s expenses and lowering the company’s margins.
  • The first three Walmart systems are online and warranty claims are already starting to accelerate, in the latest quarter already $2 million in warranties were claimed.
  • The company claims to use cutting-edge A.I. software but Symbotic explains its “A.I.-powered software” with its software being enhanced by artificial intelligence. It’s a generic description lacking any depth.
  • The company’s head of machine learning quit in January 2023 and started at a competitor
  • According to a LinkedIn search, only eight (!) out of 1080 employees at Symbotic are working on artificial intelligence and the company has no full-time position open.
  • The alleged strategically addressed markets (“SAM”) of $393 billion are based on a unobjective market study researched by a related-party.
  • Independent research estimates the market size at $41 billion in 2027 and $58 billion by 2031, that’s an 86 percent smaller TAM than claimed by Symbotic.
  • The current valuation of Symbotic lacks any merit. It is based on more than dubious claims and wishful thinking.

We think Symbotic is uninvestable.

In regards to Walmart, we believe,

  • Walmart laid out an omnichannel strategy to grow topline while improving operating margins and the company’s return on investment.
  • A centerpiece of that strategy is the automation of Walmart’s supply chains and the company guided 20% unit costs savings through automation.
  • As part of the strategy, the company will automate most of its supply chain infrastructure with four partners and has hired Symbotic to retrofit its ambient network: the 42 regional distribution centers (“RDC”).
  • Walmart’s RDCs are the backbone of its supply chain as an estimated 36% of all sales flow through the regional distribution centers.
  • Instead of choosing an established automation company – most of them already did or do business with Walmart – Walmart chose a newcomer with zero track record.
  • During conservations and interviews, former employees and industry experts stated that Walmart lacked a proper due diligence process and believed what Symbotic told them.
  • They said that Walmart made Symbotic what the company is today and former employees stated that Walmart invested hundreds of millions of dollars to improve Symbotic’s products.
  • Walmart hired an inexperienced newcomer to work on its most critical supply chain infrastructure and Symbotic started outsourcing all the work to third-party contractors.
  • Inherent to awarding the billion-dollar contract is a significant conflict of interest: Symbotic, an unknown player with little to no track record, gets a $12 billion contract and the Walmart executive in charge of sourcing, planning, and negotiating with the bidders is hired by the winner – less than three months after the agreement was announced.
  • Without Walmart supporting Symbotic’s development, funding the venture and without the RDC contract, Symbotic wouldn’t be where they are today.
  • Walmart is putting the pedal to the metal because its management told investors that the omnichannel strategy will yield significant ROI by 2026.
  • The accelerated deployment doesn’t yield any benefits for any party because the faster rollout leads to elevated risk for any subsequent system failures, quality problems, and downtimes down the road.
  • The problems will arise as soon as most systems are going live and there will be more like a trickle-down effect of failure, inefficiencies, and glitches through Walmart’s supply chain operations.
  • Walmart is stuck with Symbotic and if anything goes south because the RDCs are the centerpiece of Walmart’s supply chain, the company will be forced to bankroll the problem-solving.
  • Symbotic’s CFO claims that the contract is non-cancelable but despite that being a lie, doing another RFP process to find a replacement is unlikely.
  • Walmart will have to invest more capex in the RDC retrofit than currently estimated and this will lead to a significantly lower free cash flow.
  • The lower FCF will dampen value-adding capital allocation like share buybacks.
  • In the last couple of years Walmart massively bought back significant amounts of shares and through that supported the company’s share price.
  • The positive expectations are more priced than the risk of choosing Symbotic as a key partner in implementing and executing Walmart’s strategy.
  • Especially as Walmart’s management signaled its confidence in executing the omnichannel strategy to its investors all while handing the actual execution duties to Symbotic and Symbotic handed it to dozens of third-party contractors.
  • It’s similar to being a patient undergoing spinal surgery. You constantly faced some small back stabbing pain hindering your performance. Now you’re determined to address it, selecting the surgeon you deem most skilled. You anticipate improving your health through this procedure. While lying anesthetized on the operating table and the surgery begins, the hired surgeon brings third-party surgeons into the operating room because 1) he doesn’t know how to perform such a complex spinal surgery and 2) to reduce his costs. Prior to the procedure, you were confident that the surgery will go well, but only later did you know whether this is really the case. You don’t know anything about the problems, shortcuts, and errors that occurred during the surgery. But the negative effects will be felt only years later.

We see significant downside for both stocks. Download the full report below on

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