Shares of Symbotic(NASDAQ: SYM)which makes artificial intelligence (AI)-enabled robots for warehouses, fell 35.9% on Wednesday on extremely heavy trading volume.
Symbotic’s shares began trading in June 2022, after the Boston-area-based company went public through a reverse merger with a special purpose acquisition company (SPAC). Walmart is an investor in the company, as well as its largest customer.
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There’s a lot going on here, so let’s unpack it into smaller pieces.
Investors’ pessimism was fueled by the company’s early Wednesday release of a statement saying it had discovered accounting errors on Nov. 25, in addition to the type it disclosed on Nov. 18, as it finalized its annual report for the 2024 financial year. was preparing the form. 10-K with the Securities and Exchange Commission (SEC). The company’s 2024 fiscal year ended on September 28.
The accounting errors that Symbotic disclosed on Nov. 18 when it reported fourth-quarter results were timing-related (between quarters within the fiscal year) and had no net impact on overall fiscal 2024 results, the company said at the time. But the newly discovered accounting errors – which occurred in the first Q2, Q3 and Q4 reports – will negatively impact several key measures in the 2024 budget results.
Due to the new discovery, Symbotic is delaying the filing of its annual report with the SEC as it restates its fiscal 2024 results. Moreover, the newly discovered flaws have led management to lower its expectations for the first quarter of fiscal 2025.
Symbotic has 15 calendar days from the date of notice of late filing with the SEC to file its annual report without incurring penalties. The notice was filed on November 27, so Symbotic’s extension lasted until Thursday, December 12.
Here’s the problem the company says it discovered on November 25:
Symbotic identified revenue recognition errors related to cost overruns that are not billable for certain implementations, which additionally impacted system revenue recognized in the second, third and fourth quarters of fiscal year 2024. …The company estimates the overall impact of Correcting these errors will reduce system revenue, system gross profit, pre-income tax income (loss) and adjusted EBITDA [earnings before interest, taxes, depreciation, and amortization] by $30 million to $40 million for fiscal 2024 compared to financial results released on November 18, 2024.
The past is the past. To me, what’s more concerning is that the company has lowered its guidance for the current quarter: “Symbotic now expects revenue of $480 million to $500 million, and adjusted EBITDA of $12 million to $16 million.”
The company did not include the previous guidance in its press release. That required me to consult the November 18 document to determine the extent of the cuts to the guidelines. The previous guidance for the first quarter was as follows:
Lowering the midpoint of first-quarter revenue guidance from $505 million to $490 million isn’t too concerning. However, lowering the midpoint of the outlook for adjusted EBITDA – a key measure of profitability – from $29 million to $14 million – is a big deal. This is just over a 50% reduction.
Profitability figures determine the valuation of shares. So given the nearly 52% haircut in adjusted first-quarter EBITDA guidance, it makes sense that investors sent Symbotic shares down 36% on Wednesday. In fact, it could be argued that the stock’s decline could have been worse, within the 52% range.
The stock hypers and presumably the short sellers (those who make money when the price of a stock falls) were out in full force on Wednesday, commenting on Symbotic stock on various financial and social media sites.
Some commentators believed the sell-off of Symbotic shares was overdone, with the accounting errors posing ‘no problem’. Others said the situation could become “another one.” Super microcomputer.” (The US The Justice Department has reportedly begun an investigation into the computer server specialist in September after a well-known short-seller issued a report alleging accounting manipulation and other relevant issues.)
Based on the available data, I believe the sell-off in Symbotic stock was justified. But the available data does not support a comparison with Supermicro.
That said, investors should note that additional relevant data may become available until the FY 2024 10-K is filed with the SEC.
Until Symbotic files its 10-K for fiscal 2024, investors cannot make informed investment decisions about its stock. So long-term investors shouldn’t be tempted to buy the stock before they can review the company’s official fiscal 2024 results from its 10-K filing.
Symbotic stocks can be very volatile for a while as day traders play tug-of-war with them.
Symbotic use Nvidia‘s graphics processing unit (GPU) chips in at least some of its AI-powered robots. This is not surprising since Nvidia’s chips and related technology are used to train and deploy various types of autonomous machines, including robots.
Indeed, Nvidia stock is the best way to invest in robotics, a market that has significant growth potential, thanks in large part to recent developments in AI.
Consider the following before purchasing shares in Symbotic:
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Beth McKenna has positions at Nvidia. The Motley Fool has and recommends positions in Nvidia and Walmart. The Motley Fool has a disclosure policy.
AI Stock Symbotic fell 36% on Wednesday due to accounting errors. What should investors do? was originally published by The Motley Fool
