• Brett Schafer

Post Earnings Analysis: iRobot Poised to Continue Strong Growth

iRobot, the leader in consumer robots and the maker of the Roomba vacuum reported 3rd quarter earnings on October 23rd. Initially Wall Street did not like report, with the stock dropping about 5% in the following days. However it has since risen back up to its pre-earning’s level, at a price of about $92 a share. The company met all of its estimates, and even beat in some areas, but a lot of short-sighted investors are worried about tariffs impacting the company’s margins. Personally I love this company and think it is has the perfect blend of innovation, leadership, and growth to make it a market out-performer in the coming years. 

So How was the Earning’s Report?

The company grew revenue 29% Y/Y to $265 million, while cost of revenue only grew 25% in the same time period.  Operating income was $37 million, and EPS was $1.12 vs. $0.76 in the prior year’s quarter. All of these metrics beat what analysts expected, and I see no red flags that could hinder growth in any of these areas. iRobot increased their full-year guidance to $1.08-1.09 billion for revenue and $92-$96 million for operating income.

Keeping up its innovative culture, the company launched two new products during the quarter, the Roomba e5 and the Roomb i7+. The e5 is their lower price point option, which will help them get penetration into more households. The i7+ is an extremely useful product that in my opinion cements robotic vacuums as the future for middle-class households. It has the ability to map a home’s floor and empty itself, leaving the owner minimal work at most. Imagine not touching your vacuum for a year and coming home to a clean floor every day. That sounds pretty damn good to me. On the conference call CEO Colin Angle said that sales were so good for the Roomba i7+ “we were challenged to keep the product in stock.” For something with such a high price point it looks like there is phenomenal demand. 

Those Damn Tariffs

The one pimple on perhaps a flawless report was the mention of the dreadful Chinese tariffs. Angle stated that the company plans not to pass on the costs associated with the tariffs to consumers, which will hurt profit margins for the time being. This is probably the best way to go about it, as in the long-run gaining traction in more households is more important for this company than keeping margins fat. Hopefully the tariffs do not last forever, but even if they do iRobot is large enough to sustain the costs associated with them. 

Partnership with Google

A couple of days before their earnings release iRobot announced a new partnership with Google’s smart home segment. The new spatial mapping capabilities of the i7+ is going to be working with Google’s smart devices to help other robots in the home to work in-sync. I think this partnership is great for a few reasons. One is that Google (and hopefully Amazon) does not see itself as a competitor to iRobot, at least at the moment. In the tech space there is always the fear that one of the Big 5 will copy you and try and run you out of business. Just look at Snap’s uninspiring stock chart for reference. Another reason is iRobot being able to monetize this mapping technology. As the smart home market grows to $41 billion in 2020, plenty of companies are going to start wanting maps of individual homes. Google is the bridge to help iRobot do this.

Product Diversification

Right now iRobot looks to be a one trick pony. The majority of its product sales come from robotic home vacuums, with a smidge on top from its Braava mop. According to Angle, the company is getting ready to diversify into more products. On the conference call he said investors should “expect the pace of new product introductions to continue into 2019.” For years we have expected a robotic lawnmower to be in the works, but as of yet nothing has been launched. Even if it seems like they are behind the market on this, most of the lawnmower products are pieces of shit. Based on this company’s history, If/when iRobot decides to launch an autonomous lawnmower we can assume it will be the best the market has to offer.

The Roomba is great, but iRobot has much more planned.  

Unlimited Future Growth

With a market cap of $2.6 billion, iRobot is barely a mid-cap company at the moment. The global robotics market is projected to hit $77 billion in 2022 on an accelerated growth rate from 2017, much of which iRobot can capture. In 10 years you might be able to say “Google, clean the house” and iRobot’s products will get all this done for you. Now, obviously they are not going to be the only company to serve this market. It sure looks like they can be a leader though, and is a reason why I think the stock could soar within the next 10 years. 

Disclosure: The author may own stocks talked about in the article

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