Investing in Consumer Robotics with iRobot (IRBT)
In a recent article, we highlighted a mobile robotic telepresence (MRT) company called Double Robotics which is addressing a niche application of robotics called “mobile robotic telepresence” or MRT. MRT is one of the two niche applications for robotics that falls under the “consumer business” segment, the other being home cleaning and maintenance. One publicly-traded company that all but dominates the latter niche is iRobot (NASDAQ:IRBT) with sales so far this year of +1,000,000 robots for home use.
Founded in 1990 by MIT roboticists, this 600 employee Company had an IPO in November 2005. Since then, their share price hasn’t performed very well losing -18% to date. iRobot has no debt, growing revenues which reached $556 million in 2014, and most importantly they are profitable.
About 63% of all their sales are non-US giving them some beneficial geographic diversification but some not so beneficial foreign currency exposure. With $220 million of cash and short term investments and a market cap of $874 million, about 25% of the price you pay for shares will be held in cash and relatively risk-free. The business is built on three different segments; Home Cleaning and Maintenance, MRT, and Defense and Security.
Home Cleaning and Maintenance
These products come with multiple slick features, but basically, they just perform one function. They clean your floors spotless when you want, how often you want, and they require minimal intervention making them the ultimate Mothers/Fathers Day gift. There are also two other home maintenance robots being sold by iRobot; the Mirra for pool cleaning ($999.99) and the Looj for gutter cleaning ($299.99). Overall sales of all these robots in units were about flat for the first 6 months of this year relative to the same period in the prior year. Both Samsung and Dyson have competing products in this segment which could be stealing market share from iRobot.
Mobile Robotic Telepresence (MRT)
Having entered the market in mid-2014, the Ava 500 is a “bigger and better” MRT robot. No iPads here, just a proper TV-sized screen with Cisco Telepresence HD video and audio-video conferencing. In addition to being able to navigate the robot remotely, the Ava 500 can also navigate itself autonomously by using mapping capabilities and pre-programmed destinations.
As you would expect, all of this functionality comes with a hefty price tag. The Ava 500 can be leased for around $2,500 per month or purchased for $69,500 which could buy you 27 “Double” MRT robots (plus the cost of 27 iPads). As of their last quarterly earnings call, iRobot gave a guidance of $3 million in telepresence revenue expected for this year. That represents just .5% of last year’s revenues, so a great deal of growth will be needed in order to make this segment impact the bottom line. Additionally, the competition is well established with Double Robotics having sold $1.2 million worth of MRT robots in a single month after their launch back in 2012.
Defense and Security
Sales in the defense and security business unit increased by 71% for the first half of 2015 compared to the same period in the year prior, but still just represents 7% of iRobot’s total revenues. The increase in revenues was driven primarily by the delivery of robots and spare parts under a contract with the Canadian Department of National Defense. This division has four main product lines; FirstLook, SUGV, PackBot, and Kobra.
While revenues for this segment showed strong growth, units didn’t. Total units shipped in the first half of 2015 were 69 compared to 78 units for the first half of 2014. Why did revenues increase so much then? Because the average selling price increased to $197 thousand from $80 thousand resulting “from a higher mix of their Packbot robot”. As of 2012, they had sold 5,000 of these defense and security robots which will no doubt continue to provide them with consumables revenues into the future.
While iRobot recently announced progress towards the development of a robotic lawnmower, as of now, it is a company that sells floor cleaning robots with the hope that sales from additional products lines will provide some revenue diversification. After all, just how many robotic vacuum cleaners and floor cleaning robots can you sell? Given these units are capable of cleaning your home without the need for much intervention, how much more technologically advanced can you make them while still adding value? Let’s hope the other product lines take off for some organic growth and iRobot (NASDAQ:IRBT) uses all that cash to make some acquisitions.
Pure-play disruptive tech stocks are not only hard to find, but investing in them is risky business. That's why we created “The Nanalyze Disruptive Tech Portfolio Report,” which lists 20 disruptive tech stocks we love so much we’ve invested in them ourselves. Find out which tech stocks we love, like, and avoid in this special report, now available for all Nanalyze Premium annual subscribers.