Robotic Vacuums Sweep iRobot Shares Higher
It’s been a little over a year since we first wrote about iRobot (NASDAQ:IRBT) a consumer robotics company that largely sells robotic vacuums. Since that article, shares of IRBT have risen +81% compared to just a +10% return for the NASDAQ index as a whole. In the last 3 months alone, IRBT stock has jumped +37% compared to a NASDAQ return of less than +2%. Below you can see the upward trajectory for IRBT:
This means that IRBT is significantly outperforming the market, especially most recently, and we want to understand if this upward surge is due to an increased appetite for robot stocks by investors or if the company just happens to be selling tons of robotic vacuums and generating improved returns for shareholders as a result. In order to gauge investors’ interest in shares of robotics companies, we need to look at an index of companies that either are directly involved in robotics or are using robotics heavily. One such index for robotics is an ETF we discussed before called the Robo Global Robotics & Automation Index ETF (NASDAQ:ROBO). Here’s the performance of that ETF over the same time frame:
So ROBO has outperformed the NASDAQ with about a +23% return but that’s still significantly less than IRBT’s return of +81%. Lastly, we can take a look at the Nanalyze Robot Stocks motif we put together back in March of this year to see how the various members performed relative to one another. If you recall, we created our robot stocks motif using members of ROBO that were publicly traded in the U.S. and classified as “bellwether” which means a majority of their revenue comes from robotics. We would also call these “pure-play” robotics stocks. Here is that list of 10 robotics companies from our motif:
The column to the far right is 1-Year returns and we see that iRobot is definitely the best performer followed by computer vision company Cognex that we highlighted before around the beginning of this year. Since the NASDAQ returned just +8% over the past year, we see that most of these robot stocks beat the benchmark with IRBT moving to become the 4th heaviest weighted stock in our motif. Looks like nothing good is happening for ARAY and OII as those are the only two stocks that couldn’t beat the NASDAQ and lost -22% and -42% respectively. So in the majority of cases, we see that robotics stocks are beating the index returns for NASDAQ with IRBT performing exceptionally well. Let’s try and find out why.
The recent strength in IRBT appears to be that in late October their 3rd quarter results were quite positive. Total revenue for Q3-2016 was $168.6 million, or +17.4% more than the $143.6 million they recorded for Q3-2015. Here’s what they had to say about increased shipments of their robotic vacuums:
Total consumer robots shipped in the three months ended October 1, 2016 were 779,000 units compared to 582,000 units in the three months ended September 26, 2015. The increase in sales of our consumer robots resulted primarily from increased sales of our Roomba 900 series robots. Our first Roomba 900 series robot, Roomba 980, launched late in the three-month period ended September 26, 2015. Roomba 960 was introduced in the three- month period ended October 1, 2016.
A 34% increase in the number of robotic vacuums sold year-over-year is pretty impressive and the Company claims to hold an over 60% market share in robotic vacuums. iRobot plans to maintain their focus on home robotics and says that they are becoming “a strategic player in the Smart Home” with plans to explore robotic lawn care, though the robot lawnmower space seems a bit saturated at the moment. Maybe they’ll look to make an acquisition? Here’s a look at the size of the overall markets that IRBT is targeting and a drilldown into the size of the robotic vacuum cleaner (RVC) market:
We see that they are targeting a total market opportunity of $13.8 billion. For the sake of comparison, 2015 revenues for IRBT were just around $617 million. We see that robotic vacuum cleaners make up just 19% of the total vacuum cleaner market and that number is growing at a CAGR of 17-20%. Of that total market share for robotic vacuum cleaners, IRBT has a dominant market share of over 60% that they attribute mainly to their R&D spending. Below you can see their RVC market share:
One of the problems that IRBT has is that everyone and their brother has decided to try and play in this space. Companies like Dyson that sell loads of vacuums are well focused on advancing their technology and if you recall, Dyson purchased Sakti3 late last year to get their hands on some solid-state lithium battery technology. Here is a look at just how many companies launched robotic vacuums in the last few years in an attempt to attack IRBT’s market share:
Here we see Dyson, of course, attacking USA, EMEA, and Japan where robot vacuums are a huge hit no doubt. Chinese electronics giant Xiaomi is entering the game alongside other Asian electronics players like Samsung and Panasonic. These are all recent entrants to the market and it remains to be seen how effective they will be in attacking IRBT’s market share. Of course, we see the entire robotic vacuum cleaner market experiencing double-digit growth so there’s enough to go around for everyone.
It seems as if the share price appreciation is merited although IRBT has their work cut out for them maintaining and growing their market share. They also divested their defense robot business and soon we’ll see if they plan to get into robotic lawnmowers via an acquisition or organically.
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