Symbotic, after the fall, and the Amazon AWS of multi-tenant warehousing 'WaaS'
Symbotic, after the fall, and the Amazon AWS of multi-tenant warehousing 'WaaS'
A tour of Symbotic following the 45% share price drop, and a detailed look at the new Amazon AWS of automated and multi-tenant distribution centers
Introduction
Symbotic is a provider of robotics and software to automate warehouses. The company currently has a backlog of $23 billion, basically guaranteeing strong revenue growth for the coming years. The plan is to automate all of Walmart’s distribution centers, with other large clients including Albertsons, Target, C&S Wholesale Grocers (although this is a related party, as both companies are owned by Rick Cohen) and Giant Tiger. The company has eight large clients in total and also recently started a joint-venture with Softbank called GreenBox to make the system available for smaller customers in a multi-tenant structure. So sort of like Amazon AWS, where smaller firms can rent space in a fully automated warehouse to manage their supply chain. This is an attractive business model as it brings in recurring revenues and should be a much larger market.
Although robotics is a competitive industry, Symbotic has developed an integrated system that fully automates the product from arrival at the warehouse, to storage, and shipment. This is not to say that competitors won’t be able to replicate Symbotic’s system over time, but the company has invested now $600 million of R&D into developing it, while having built up a track record with blue chip clients such as Walmart to install and operate fully functioning systems. Additionally, at the company’s recent investor day, I was quite impressed with the continuous improvements they’re making to the system. So obviously a certain amount of moat is forming and as the company is a fast moving target, it looks like this company is well-positioned to take a significant share in the automation market for warehouses and distribution centers.
What will be key is to figure out ways to increase the amount of recurring revenues over time — for example with software subscriptions, operational services, and the GreenBox business model — as at some stage the number of system installations per year will start to mature and then even become cyclical. So the more the company can increase the proportion of recurring revenues, the higher its multiple at maturity will be.
There have been some muppets analysts who claim that Symbotic’s tech doesn’t work. Well, it’s not that hard to actually do a few credible channel checks. Let’s have a look what Walmart is saying on their conference call. This is Walmart de Mexico discussing Symbotic’s system at their recent investor day in May:
“We are enabling state-of-the-art automation in our distribution network. To that end, we have signed a memorandum of understanding with Symbotic that leverages the very same tech solution implemented by our distribution center (DC) in Walmart US. As you can see in the video, this tech and AI solution not only fully automates our DC operation, it actually provides the unique capability to deliver pallets to stores organized by aisle and by category, enabling productivity to the next level at our stores. These productivity gains in the back-end will free more than 1,000 associates to serve better our customers in the front-end. We will start this deployment in the buildup of our new DC Bajio, our biggest one in the supply chain network that we expect to open in 2027. Additionally, we are working to further deploy these type of technologies across the entire network in the years to come. We will actually be the first movers with this type of solution in all the Latin American retail industry.”
So Walmart is not only automating all their distribution centers in the US with Symbotic, but they’re now also rolling the system out to Mexico. And United Natural Foods made similar positive comments on their call.
A lot of companies are working on robotics around the world, however, it does look like Symbotic has built up a compelling product when it come to supply chain automation. This is Symbotic’s founder Rick Cohen commenting on competition:
“We continue to feel like we are investing more in research and development than anybody else in supply chain technology automation. Not only that, but we think that our R&D is extensively pointed at new product innovation, whereas our competition has to invest heavily in just maintaining what they have.”
He’s referring here to more legacy point solutions which provide a certain amount of automation, and these can get as well replaced with a fully automated system over time. Let’s take a closer look what a fully automated system looks like.
Symbotic’s integrated automation system
The company’s systems manage the complete chain of warehouse operations, from the time merchandise is being off-loaded from the trucks, to the storage and retrieval of inventory, and to the preparation of shipments to retail stores. The platform is composed of de-palletizing robotic arms, which pick cases from newly arrived pallets; atomizing robotic arms, which position the cases to go through the scanning tunnels where the products can be automatically checked and scanned in; autonomous mobile robots, which store and retrieve cases from Symbotic’s 3D storage cells; and palletizing robots that stack pallets with the needed cases to be shipped to the retail stores.
On the image below, the de-palletizing robotic arm is the large one on the right. It takes an entire layer of cases at once from an arrived pallet and puts it on the conveyor belt:
Subsequently, atomizing robotic arms organize the individual cases on the conveyor belt to go through the scanning tunnel, where each product’s dimensions are scanned in addition to health checks being performed to check for damage. Any case that the system determines to be damaged is set aside so that a human worker can inspect the product to either repair or reject it.
Upon exit from the scanning tunnel, the cases move to lifts where they are brought up to the selected level in Symbotic’s 3D storage structure. At each level, cases are picked up by autonomous mobile robots called the ‘Symbots’ who drive the cases to their target storage cells.
Symbotic’s overall 3D storage structure is built up from three feet tall levels, stacked on top of each other. Each level contains a series of parallel aisles for the Symbots to travel to the storage cells. The company’s software determines the optimal storage location for each case to minimize travelling times. Products with lower throughput are stored at the back, and those with high throughput are stored in front.
Symbotic claims to have the fastest robots in the industry, travelling through the warehouse at speeds of 25 mph. The Symbots’ batteries are automatically recharged from charge plates integrated into the floors, allowing the bots to work continuously. Symbots are also interchangeable so if one needs to be taken out of production for maintenance, the software will assign its tasks to another one. At the recent investor event, the company disclosed further improvements which we’ll go through later.
For shipment, the mobile bots retrieve the cases and travel them to outbound lifts from where these are loaded onto conveyor belts. At the end of each belt, palletizing robotic arms grap the cases to create pallets, from where they are loaded onto trucks. Pallets are built according to the aisles of the destined retail stores so that the local staff can rapidly shelve the goods once they arrive at the store.
An outbound cell with palletizing robotic arms:
And the software implementing how the pallet should be stacked:
This is what a finished pallet can look like:
The whole system is designed so that there isn’t a single point of failure. There are a multitude of robots, lifts and conveyor belts, so that any task can always be taken over by another unit. Additionally, all equipment has a modular design so that components can easily be swapped out for replacement on site. The software provides analysis and predictions of inventory levels, product throughput, system performance and maintenance needs. According to the company, their platform has an accuracy of more than 99.999999%.
Below is an illustration of what the complete system looks like. Due to the 3D structure with small robots travelling at each level, the storage solution is incredibly dense compared to traditional warehouses, with limited space wasted. This results in large cost reductions for customers as on average two warehouses can be consolidated into one. The system can be installed in distribution centers of various sizes and shapes due to its modular and extendable design.
The typical system costs around $50 million, depending on the size needed, which results in $10 million of annual costs savings for the customers on Symbotic’s estimates. The expected lifespan is 25 years, resulting in a total $250 million of savings over the system’s full life. In March, the company had rolled out 18 fully automated systems so far across distribution centers in the US.
So Symbotic is a fairly interesting story with capable tech that is still lowly penetrated, while the company has creative ideas for new business models such as the multi-tenant Warehouse-as-a-Service (WaaS), similar to Amazon’s AWS Infrastructure-as-a-Service (IaaS). These are some of the most attractive business models in the world as clients are usually largely captive, while bringing in high-margin and annually recurring revenues. However, after the recent results, the shares have fallen out of bed again which is one of the main reasons for revisiting this story..
For premium subscribers, we’ll review:
The causes behind the share price fall and how Symbotic is scaling up the business.
The joint-venture with Softbank to become the Amazon AWS of distribution centers. If you wish you were an early Amazon investor when AWS started to take off, perhaps there’s a second chance.
What the valuation for Symbotic’s variety of business models should look like for long term investors. We’ll do some detailed long term modelling on each business: one-off system installations, servicing and maintenance revenues, and the new multi- tenant WaaS.
Symbotic’s recent investor day and new innovations introduced by the company.
The company’s financials and valuation, with concluding thoughts on whether it makes sense to invest here.