- Berkshire Grey is trading ~40% lower than the initial IPO valuation.
- Top names are involved as investors, customers, or partners.
- There are proprietary solutions and a holistic approach from Berkshire Grey's competitive advantage.
- Large TAM and sector potential constitute a large pool for future revenue.
- The presence of high-quality leadership and personnel can lead to success.
Currently trading ~40% lower vs. the initial IPO valuation, Berkshire Grey (BGRY) presents an opportunity for investors to initiate a long-term position at the current levels with a view to 2025.
Considering the accelerating growth of e-commerce and the ongoing reshaping of logistics, both of which might have partially been triggered by the COVID-19 outbreak, Berkshire Grey plans to meet the increasing demand in robotic systems for production lines, warehouses, and distribution centers. Furthermore, global supply chain bottlenecks, as well as labor shortages and higher wage demands in the US make it clearer: Berkshire Grey is an innovative early mover, that offers a holistic approach differentiated from the competition, and is here to be a sector protagonist. The company seems ready to scale and thrive in a large and continuously growing global target market that is making the first steps towards full automation.
Finally, its strong leadership team and high-profile hires, the presence of investors including Khosla Ventures, New Enterprise Associates, Canaan Partners and SoftBank Group Corp (OTCPK:SFTBY), PIPE anchored by Chamath Palihapitiya and BlackRock (BLK), as well as top-tier clients such as Walmart (WMT), FedEx (FDX), Target (TGT), TJX (TJX), Meijer, and SoftBank are early signs of a sector leader in the making.
Founded in 2013, Berkshire Grey is now a leading, pure-play, AI-enabled robotics company that is publicly traded on the Nasdaq Stock Market, after the completion of the business combination with the SPAC Revolution Acceleration Acquisition Corp on July 21, 2021.
With over 300 patent filings submitted, Berkshire Grey offers proprietary hardware and software solutions to the potential customer, presenting a holistic and differentiated approach, mainly targeting to attract retail, e-commerce, grocery, 3PL, and package handling companies.
Source: 08/2021 Investor Presentation
Berkshire Grey leases the facilities needed to operate and it will continue to do so in the near future. Core hardware modules are currently built by contracted manufacturers. This asset-light approach ensures low risk and allows management to focus on scaling the business.
So far, Berkshire Grey has deployed solutions in the United States and Japan. The company is expecting to enter the Canadian market by the end of 2021, while there are plans for further expansion to Europe, Asia, and other regions around the globe. Offices are currently operating in the US, Japan, and the UK.
Potential customers can have access to a full portfolio of capabilities, called Intelligent Enterprise Robotics (IER), that can effectively automate the warehouse operations providing picking, packing, sorting, and moving goods and packages solutions. In addition to the construction, installation, testing, and commissioning of the solutions, a full set of services is offered to support customers with software updates, maintenance, system operation, and cloud-based monitoring and analytics.
Source: 08/2021 Investor Presentation
All of the above may seem very interesting, innovative, and high-tech, but even assuming that the solutions are indeed flexible, fast, and reliable, why should a customer decide to splash the cash and buy them? According to Berkshire Grey, deploying their solutions could reduce labor spending by 70%, through robotic picking and intelligent mobility. Furthermore, a best-in-class return on investment for the potential customer could be achieved in 2-3 years.
Berkshire Grey's ranks consist of highly skilled, experienced, and specialized executives and professionals, formerly employed by top-tier companies and organizations. At least 28 employees are holders of a PhD, while the company is in pursuit of additional new talent with frequent job listings.
Source: 02/2021 Investor Presentation
Berkshire Grey's customers are facing growing demand, competition, need for better and faster service, as well as increasing labor shortage and wages. Walmart, FedEx, Target, TJX, Meijer, and SoftBank are some of Berkshire Grey's top-tier clients among other smaller ones. Orders since 2019 are $148M and the current backlog, expected to be delivered during 2021 and early 2022, is ~$95M. A key element of Berkshire Grey's future growth is the establishment of a trusting relationship with existing customers, especially the large ones, in addition to the new domestic or international customers that will be attracted through the gradual expansion and scaling. There is also a partnership program called Berkshire Grey Partner Alliance. Recently announced partnerships with the established, leading companies Atos, North Highland, and AHS (especially as Atos is a global digital transformation leader) will result in more orders.
Berkshire Grey's TAM is calculated around $280B and considering that only 5% of warehouses are currently automated, there is definitely room to grow, scale and claim a large market slice as a leading company. Quite similar solutions can be applied in several companies of the warehouse/logistics ecosystem, tailored to the needs of the specific customer. Therefore, Berkshire Grey's solutions can have a large and growing audience, which will be searching for automation, speed, reliability, flexibility without paying a fortune.
As the #1 global e-commerce player, Amazon (AMZN) acknowledged the need for automation, moved quickly in the right direction, and invested in the field, influencing the whole industry. The acquisition of Kiva Systems allowed Amazon to develop a tailored automated robotics business, improving key aspects of their operations, while also helping the company to reduce costs and become less labor-dependent (for more information you can check out the Amazon Robotics Case Study). Amazon's case is an example not only for large global players but also for smaller ones. To compete properly, they need to keep up. Berkshire Grey claims to hold the key to meeting these needs.
Berkshire Grey's competitors can be found either in conventional manual systems supported by human labor, or in respective start-up robotic companies, components or software providers. Considering the fragmentation and the early days of the market, it seems as there is no direct competition. The competitive advantage that Berkshire Grey brings in the field is the holistic approach of integrated hardware and software solutions that can provide autonomous warehouse operations, creating a whole-system orchestration and combining characteristics that competitors only provide separately for now.
Berkshire Grey's Pipeline of $1,7B strongly supports its growth prospect. Since 2019 $148M-worth orders have been made. As of June 30, the $95M current backlog makes it highly possible that the 2021 revenue forecast of $59M will be met or even beaten. According to Berkshire Grey, ~94% of the 2021 revenue forecast comes in a contract. In addition, a global retailer placed a $23+M order for online same-day grocery fulfillment.
Therefore, we don't have a pre-revenue start-up here, but a company already producing, making revenue to meet their forecasts. Of course, we are talking about a tech growth company, so we will be looking into the future. The definitive agreement gave Berkshire Grey a pro forma Enterprise Value of $2.234B at a share price of $10. At this period with a share price of ~$6, we have an EV of ~$1,2B. The initial valuation was not that attractive in my opinion but the current one is. Current EV/E2025EBITDA gives us a 5.2 result. With a conservative 12 EV/EBITDA multiplier Berkshire Grey's EV would be ~ 2.77B or $13.8/share, more than double from current price.
To sum up, I believe Berkshire Grey is not that speculative and their forecasts are conservative. Updated guidance could prove that and we should also review the upcoming earnings release on 11/11/2021.
Source: 02/2021 Investor Presentation
Just recently, a rumor was published about a possible agreement between robotics and automation company Symbotic and SVF Investment Corp. 3 (SVFC), a New York-listed SPAC set up by SoftBank. As per a Seeking Alpha news item, "according to Sky News, Symbotic and SVF Investment Corp 3 are negotiating a deal that could value the merged entity at ~$4.5B."
Undoubtedly, with Berkshire Grey's EV at ~$1,2B, it would be interesting to learn more about Symbotic's financial forecasts so that we can have some ground for comparison. Another interesting remark is that SoftBank and Walmart are involved, while they are also involved in Berkshire Grey as customers (Walmart) and investors/customers/partners (SoftBank).
Earlier this year Walmart announced its intention to double down on automation technology within its supply chain. SoftBank aims to lead the robotics/automation ecosystem worldwide. The aforementioned developments could even spark M&A thoughts considering the fragmentation of the sector, and the fact that both Berkshire Grey and Symbotic operate in a similar field.
Berkshire Grey is a high-growth company in the process of scaling production and in pursuit of worldwide expansion. Thus, there are numerous uncertainties regarding the execution of the business plan, future capital requirements, revenue, expenses, earnings, etc. Factors such as the expansion in new markets/countries, maintaining existing clients, obtaining new clients/partners, and competing effectively remain questionable. Furthermore, revenue is mainly generated from a limited number of customers - 1H2021: SoftBank, FedEx, and Meijer - 38%, 30%, and 19% of the revenue, respectively. And for FY2020: Target Corporation and SoftBank Robotics Corp - 70% and 30% of the revenue respectively).
The projected $507 million cash on the balance sheet (no debt), according to the investor presentation, was expected to fully fund the business model through the achievement of positive cash flow (2024). The completion of the business combination resulted in $192,548,000 excess cash to the balance sheet from Business Combination (Source: SEC Filing of Form 8-K/A), significantly lower than the initial expectations. The capital raised is now expected to support the execution of Berkshire Grey's strategic plan into the 4th quarter of 2022. Considering this fact, we should acknowledge that the company may need to raise more capital during 2022. Therefore, volatility and, possibly, dilution are expected along the way.
All things considered, I am fairly confident that we have a compelling opportunity here, looking at an innovative American company, which introduces a holistic approach to AI robotic solutions and has the potential to become a sector leader. Their solutions are already installed and proven. Producing and presenting a considerably notable customer/partner list makes Berkshire Grey less speculative, especially if they prove capable of meeting/beating 2021 revenue forecasts. The supply chain problem could slightly push back production but this is a global matter. At ~$6 price per share or lower, I consider Berkshire Grey a buying opportunity for an initial position with a 2025 perspective. As always in similar cases, we should closely watch that management delivers and make sure that the future progress will meet our expectations - especially compared to peers.
This article was written by
Analyst’s Disclosure: I/we have a beneficial long position in the shares of BGRY either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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