Just Released
December 5, 2024 - SHORT SERVE ROBOTICS ($SERV)
Serve Robotics Inc. (“SERV”, “Serve”) generates revenues by charging clients for the use of its sidewalk robots to facilitate food deliveries, primarily for Uber Eats in Los Angeles California. On November 7, 2024, Serve announced it would acquire Vebu Inc. (“Vebu”) (fka “Wavemaker Labs”), an automation incubator founded by Serve’s director James Buckly Jordan (“Buck Jordan”). We were surprised by the deal because Vebu has a history of launching failed prototypes, and its primary commercial robot is used to cut and peel avocadoes rather than delivering food. To us, Serve’s business failed to generate commercial interest so Serve used the Vebu acquisition to unjustly enrich insiders at the expense of SERV shareholders.
1. VEBU DEAL UNJUSTLY ENRICHED RELATED PARTIES: We believe Buck Jordan established a playbook where he crowdfunded to launch robots which would revolutionize various food categories. He then siphoned funds back to affiliated entities through service agreements and other related party dealings, but the ventures ultimately failed to deliver. Buck Jordan raised at least US$ 150 million across ~10 different robotics businesses and each one failed to generate commercial interest.
A key hallmark of these failures had been pilot deals with marquee, related-party customers which tout huge upside that never comes to fruition. In one of the most egregious examples, Buck Jordan’s pizza robot company, Piestro, claimed it had US$ 580 million in pre-orders for 4,200+ units. Piestro is now defunct after never generating revenues. Miso Robotics (“Miso”) was a failure, having deployed only 15 units after promising hundreds. We found online reviews where investors labeled Buck Jordan’s ventures as “scams” suggesting participants in his crowdfunding campaigns had caught on to the playbook and left him searching for another exit – Enter Serve…
We believe that Vebu’s marquee investor and customer, Chipotle, was the result of an undisclosed relationship between Buck Jordan and the executives running Chipotle’s venture fund. A former Vebu employee who worked on all phases of the Autocado explained to us that Vebu had significant challenges when prototyping with Chipotle and struggled to scale commercially. This has been marked by Vebu’s declining revenue from Chipotle with only one store deployment since the partnership was announced in July 2023. Meanwhile Buck Jordan had reduced his SERV holdings by 20% since the Vebu deal was reported.
2. SERVE TRACKING AT LESS THAN 3% OF GUIDANCE FOR ROLLOUT DEPLOYMENT: Serve’s CEO Ali Kashani (“Kashani”) repeatedly told investors that 2,000 robots would be deployed by end of CYE’25 and would generate annual revenues of US$ 60-80 million. As of 3Q’24, Serve had 59 daily robots, less than 3% of its guidance. We spoke with several industry participants who agreed it is unlikely that Serve will reach its target robot unit count by CYE’25. Additionally, our analysis indicated that Serve’s revenue guidance is only possible if unrealistic utilization and delivery fees are assumed. As a reality check on Serve’s claims, we highlight videos of pedestrians mocking Serve’s robots as they run red lights, get stuck, and topple over themselves while performing basic maneuvers.
3. LARGEST INVESTOR UBER EATS USING COMPETITORS IN THE US AND ABROAD: We view Serve’s largest investor and delivery customer, Uber Eats, signing sidewalk robot deals with Serve’s competitors, Avride and Coco Robotics as a clear reflection of Serve’s shortcomings. Other food delivery platforms that are not Serve customers, such as DoorDash and GrubHub, opted for competitor robots or in-house solutions. We believe that these platforms are choosing competing sidewalk robots because the competing offerings cost are 90% less than Serve’s robots.
4. FAILED PARTNERSHIP WITH MAGNA: Historically, the bulk of Serve’s revenues were generated from a software licensing deal with related-party Magna International (“Magna”). To encourage Magna, Serve gifted Magna over US$ 15 million in $0.01 warrants and paid US$ 5.3 million in contract manufacturing costs to Magna. Meanwhile the arrangement generated less than US$ 1 million in revenues for Serve, with revenues declining by 95+% as of 3Q’24. Bad deal for SERV shareholders. Good deal for Magna.
Serve faces significant competition for last-mile delivery and falls behind on its hyped competitive advantages. Serve’s largest investor opted to use alternative competing sidewalk delivery robots. Serve’s software is no longer of interest to its exclusive manufacturer. Serve failed to achieve commercial interest from other third-party food delivery services. With little/no commercial interest (including from related parties), a significant cash burn and a low probability of scaling up to 2,000 robots by CYE’25, we are short SERV and think its stock is going significantly lower.