E IRobot Entry Point To A Beaten-Down Growth Stock

iRobot products are part of the List 3 goods and impacted by 25% tariffs.

Mnuchin mentioned the reduction of tariffs will possibly be a part of the second part of the trade deal with China. But iRobot's management is not waiting for this to happen. They built up a site in Malaysia, which started production in November 2019.

During 2020 a third of all Roombas sold in the US will be from Malaysia. Additionally, production is planned to be accelerated. The objective is to cover the complete RVC portfolio of iRobot by the end of 2021. Even if tariffs stay in place, the weight of those on the profitability will weaken during the upcoming years.  

Competition

During the last year competition increased, Ecovacs, Mi, Roborock and Shark continue to take market share of iRobot. In 2014 iRobot's market share was 63%, 4 years later it decreased to 52%. And it will most likely continue to decrease. But does this matter?

Only partly, because the domestic robot market is growing, therefore even a lower market share will lead to revenue growth for iRobot.

There are several predictions on the growth rate of the market: Fortune Business projects a CAGR of 25.3 % over the period from 2019 to 2026, Loop Venture expects a CAGR of 13% from 2015 to 2025,

Marketwatch predictions add up to a CAGR of 13.3% from 2019 to 2024

The expectations are varying in numbers, but all of the researchers conclude that the market will grow double-digits over the next 5 years.

Diversification of the Product portfolio

Besides this, iRobot is also diversifying its product portfolio. During 2019 Braava, a mopping robot, grow in revenue YoY by 28% and generated $100 million in revenue. The Braava is expected to also have strong growth rates in the upcoming years.

The mopping and mower robot markets are both rather new markets and iRobot is on its way to take a strong position from the beginning.

iRobot is mostly a B2C company and does not focus much on B2B. But especially the lawnmower robot ”Terra”, could open up a great opportunity in the future. Several Companies could save personnel expenses by investing in iRobot products. This market is nearly untapped by iRobot and could be a future growth catalyst.

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Disclosure: I am long IRBT.

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Comments

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Dan Richards 3 months ago Member's comment

#iRobot has too many competitors for me to seriously consider it's stock. I see nothing that differentiates it from the multitude of other similar products out there. $IRBT

Robert Templin 3 months ago Author's comment

The competition is one of the reasons why iRobot trades at such a big discount in comparison to last year. I agree with you, the competitors in the robot vacuum cleaner market are a threat to market share. It is also one of the reasons why iRobot trades at such a big discount in comparison to last year. But this is mostly only the case for the cheaper Roomba models and even these sold extremely well during Q4. This could be partly due to its strong brand recognition. Because a lot of people call robot vacuums in general Roombas, no matter what kind of robot vacuum they are talking about. Furthermore, iRobot has a patented two roller brush system which is exceptionally good for the deep cleaning of carpets. My friends, who own an iRobot vacuum cleaner are also very happy with the durability. Overall the strength of iRobot lays in the high-end product category. The self-emptying feature is an advantage over nearly all other competitors and makes it feel like an autonomous cleaning experience. Through a broader product portfolio and overall growing robotic markets, iRobot is still positioned pretty well.

Thank you for reading and your feedback. I appreciate it! :)

Alexis Renault 3 months ago Member's comment

Why does it matter what people call their electric vacs? It matters what they buy. I call all bandages "band aids" but I can't remember when I actually purchased that particular brand. $IRBT

Robert Templin 3 months ago Author's comment

It leads to higher brand popularity, more people will be aware of the company and its products. It is free marketing, it does not necessarily lead to higher sales. But the probability of more sales increases just by getting the name out there. Moreover, iRobot is the company with the highest market share in the robot vacuum market.

Alexis Renault 3 months ago Member's comment

Brand recognition is of course great, I'm just not convinced it's enough of a differentiating factor. It depends if it translates to brand loyalty. Some companies like Apple have tons of brand loyalty. I'm don't iRobot has nearly as much.

Robert Templin 3 months ago Author's comment

You are right, but few companies come close to the brand loyalty of Apple. Especially in such a competitive market that Apple is in. Tesla comes also to my mind. But iRobot does not need to be Apple or Tesla to offer a great value at the current price point. In comparison to the overall automotive or phone market, the consumer robotics market is growing rapidly. This in combination with the fact, that iRobot will also be a serious competitor in the mopping and mowing space gives me enough confidence that revenue will continue to grow. I also especially like the vision of the CEO, that the goal of iRobot is to be responsible for all the annoying and painful tasks at home in the long-run. They will not continue to only be a vacuum company.