Serve Robotics (SERV), an innovative company providing AI-powered last-mile robot delivery services, has witnessed a volatile journey since its initial public offering (IPO) on April 18th. While SERV shares initially surged by 197.8%, they have since experienced a downturn, dropping 37% in the past month, significantly underperforming the Zacks Computer & Technology sector’s gain of 4.5% and the Zacks IT Services industry’s return of 3.2%. This recent dip in SERV shares has left investors pondering if it’s the right time to invest in the company.
Despite the recent volatility, Serve Robotics’ future appears promising, driven by the increasing demand for last-mile delivery of food and other items through partner platforms like Uber Eats and 7-Eleven. The company, which was spun off from Uber Technologies in 2021, boasts a strong investor base including NVIDIA, Uber, 7-Ventures, and Delivery Hero’s corporate venture units. With a robust liquidity position, SERV is well-equipped to execute its long-term strategic plan, which includes deploying 2,000 robots across the United States by 2025. The company has already completed the design phase for its third-generation robot and has secured $35.8 million in gross proceeds from its IPO and an additional $15 million from a private placement. As of June 30, 2024, SERV held $28.8 million in cash and cash equivalents and has recently raised another $20 million.
Serve Robotics envisions a future where robots can significantly reduce the cost of delivery, making on-demand delivery more affordable and accessible. The ARK Invest report suggests a potential global market of $450 billion for food and parcel delivery by robots and drones by 2030. SERV’s expanding robotics offerings aim to solidify its competitive position in the last-mile delivery space, currently dominated by players like DoorDash and Amazon. The company’s growing partner base, including Shake Shack, Ouster, and Magna, further strengthens its standing. In June 2024, SERV expanded its delivery operations into Koreatown and began onboarding new local merchants through its partnership with Uber Eats. Its latest partnership with SHAK has broadened its footprint in Los Angeles, where SERV plans to deploy 250 robots by the end of the first quarter of 2025. The company’s expansion plans also encompass other cities like San Diego, Dallas, and Vancouver. Magna has become a contract manufacturer for SERV’s technology, with the first robots expected to roll off the production line by the end of the fourth quarter of 2024.
While SERV’s long-term growth prospects are encouraging, investors should remain cautious. Despite the company’s technical indicator currently being bullish, as shares are trading above the 50-day moving average, some key concerns remain. Firstly, SERV stock is currently considered overvalued, as indicated by its Value Score of F. Secondly, SERV’s revenue decline on a sequential basis in the second quarter of 2024 is a cause for concern. Furthermore, the company’s reliance on a single customer for 74% of its accounts receivable as of June 30, 2024, poses a risk.
Although the recent dip in SERV shares might appear as an opportunity for investors, the company’s current challenges suggest it is still a risky investment. While SERV’s expanding robotics fleet bodes well for long-term investors, it is prudent to await a more favorable entry point. Serve Robotics currently holds a Zacks Rank #3 (Hold), indicating that investors might be better off waiting for a more opportune time to enter the stock.
