iRobot’s Earnings Disappointment Doesn’t Change Long-Term Story

Heading into the Q4 print we were confident iRobot would report better-than-expected revenues and guide 2018 sales above street expectations (see note here), which they did, but we incorrectly judged the magnitude lower EPS could have on the stock. Shares of iRobot finished down 30% due to investors concerns with decelerating revenue growth and lower-than-expected profitability. That said, with the revenue outlook being inline with our expectations and the lower earnings forecast being largely attributed to increased marketing and R&D spend (and not price erosion), we remain believers in the long-term iRobot story. Following iRobot’s results our two key takeaways are 1) the domestic robot market is and will remain one of the fastest growing robotic markets over the next 3 years and 2) iRobot will continue to lead the wave of home robot adoption.

20% Growth Through 2020. In addition to providing 2018 guidance that implies 20% year/year revenue growth, iRobot expects this type of growth to continue through 2020. Although investors view 20% growth as a deceleration over prior years, we view this forecast as in-line to our estimates and higher than most longer-term consensus models. Given Management’s history of providing conservative guidance, we think there is room for these numbers to go higher as we make our way throughout the year. Demand will be driven by increased Roomba and Braava sales from both domestic and international homes.

iRobot Leading Domestic Robot Wave. The company announced they will be rolling out a slate of new products in 2H18, which is expected to account for 25% of total sales. While the company did not give much detail on these new products, we anticipate they will enhance both the Roomba and Braava product portfolios. The company continues to heavily invest in R&D, and we believe the company will soon expand their core presence outside of vacuums and wet-floor products.

Link to model here.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Expect iRobot to Have Cleaned Up During Holiday Season

iRobot is the leading manufacturer of robotic vacuums and wet floor products in the world. Based on holiday pricing trends we believe the company sold more robots than expected in the Dec-17 quarter. In addition, we believe the domestic robot market is one of the fastest growing robotic segments, and given iRobot’s positioning and premium tech, we expect the company to sustain 20%+ revenue growth in 2018. While increased competition has been a growing threat to iRobot’s market share in recent quarters we believe these threats are overblown and believe the company is in position to outperform current expectations over the next year.

Strong Pricing Trends Across Entire Portfolio. Over the last 3 years, we have tracked iRobot pricing across the company’s 4 larger US distributors (Best Buy, Amazon, Bed Bath & Beyond and Target) on every Friday in the quarter. While pricing is not a perfect indicator to demand trends, price discounting has historically had a solid correlation to iRobot’s quarterly results. As displayed in the chart below, the company experienced on average higher pricing across all products we track (Roomba 980, Roomba 960, Braava 380T and Braava Jet) in the Dec-17 quarter than they did in the Dec-16 quarter. We find this encouraging because we felt pricing last holiday season was strong, which translated into the company beating Dec-16 Street revenue expectations by ~$6M (or 3%), and EPS by $0.08 (or 20%). Given these strong pricing data points, coupled with Management’s history of providing conservative guidance we expect the company to once again exceed Dec-17 Street estimates.

While pricing remained similar Y/Y at Best Buy, Bed Bath & Beyond, and Target in Dec-17 quarter, we would like to highlight prices on Amazon increased over regular retail price regularly throughout the quarter. Given Amazon’s pricing strategy is based more on supply and demand trends, we believe above regular retail pricing late in the Dec-17 quarter is the strongest sign of demand.

Expect Solid 2018 Guidance, but Likely Conservative Although we expect iRobot to beat Dec-17 Street estimates, the key number investors will focus on is how the company guides for 2018. Despite concerns about increased competition, the domestic robot market is inflecting, and given the most penetrated robotics vacuum market in the world (the U.S.) is less than 10%, we believe there is plenty of room to run both domestically and internationally. The Street is currently expecting iRobot to guide 2018 revenues to ~$1.0B, which implies ~16% Y/Y growth. iRobot has experienced 3 consecutive quarters of 20%+ growth and is on pace to grow over 30% in CY17. In addition, we anticipate the robotic vacuum market to grow 26% Y/Y in 2018. (Link to domestic macro model here.) Given the current market dynamics and iRobot’s market positioning, we believe Street numbers are conservative. However, given Management’s history of consistently beating expectations, we wouldn’t be surprised if the company guides in-line to modestly above consensus, but expect multiple beat and raise quarters throughout the year.

Robot Lawnmower Positive 2018 Catalyst. While iRobot continues to not provide any color on when they will release a lawnmower, we continue to believe it is likely they will introduce a robot lawnmower in 2018. However, most importantly this a “when” not an “if”, they will introduce a robotic lawnmower. We’re modeling for the lawn mower to launch in Mar-18 (and account for 5% of revenue in the Jun-18 quarter) and account for 8% of 2020 revenue. The Street is not modeling the lawn mower.

Model Adjustments. Given the expectation for better than expected demand in the Dec-17 quarter, we are raising our revenue estimates to the high-end of the company’s 2017 guidance ($870 – 880M vs cons $875M). We are leaving our 2018 estimates largely unchanged, but would like to note our current estimates of $1.1B are above consensus ($1.0B) due to our model factoring in ~$60M in lawnmower revenue. Assuming the lawnmower gets pushed out till 2019, we still believe iRobot can grow ~23% Y/Y. Link to model here.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Why You Should Buy a Roomba Vacuum in the Next 5 Days

With consumers appetite for robotic technology continuing to grow, we anticipate domestic robots, which include robotic vacuums, mops and lawnmowers, to be one of the hottest gifts this coming holiday season. While there are many kinds of domestic robot brands, we believe iRobot’s Roomba vacuums and Braava wet floor products are two of the best domestic robots in their respective categories.

Although these and other domestic robots can seem expensive, early in the holiday season is the best time to save money on these high-tech gadgets. But how much can you save, and are you really getting the best deal? Over the last 2+ years, we have been tracking Roomba and Braava prices on iRobot’s website as well as at the company’s 4 larger North American retailers: Amazon, Best Buy, Bed Bath & Beyond and Target. While historical results can not always predict future outcomes, our data suggests buying over the next 5 days maybe the best time to get a deal on a Roomba or Braava robot.

Roomba Vacuums. iRobot currently sells 5 different Roomba vacuum cleaners on the company’s website, which include the 980, 960, 890, 690 and 614. The Roomba 980 and 96o Series are the company’s premium vacuum cleaners, and normally retail for $900 and $800, respectively. These higher-end products have longer battery endurance, wifi connectivity, as well as stronger suction power than low-end models. Last Friday (Black Friday) and today (Cyber Monday), the 980 and 96o were selling for $800 and $700, respectively across all channels we tracked. This is in-line with last year’s Black Friday and Cyber Monday discounts; however, if history repeats itself, this deal will only last through the end of week. Last year from Dec 2nd till the end of the month, both models returned to their original retail price. iRobot is also selling a low-end Roomba vacuum, 690 and 614, for $375 and $250, respectively across most channels, but given these are newer products, we do not have historical pricing on these product lines.

Braava Wet Floor. iRobot currently sells two kinds of wet floor products, Braava 380 and Braava Jet, which each normally retail for $300 and $200, respectively. Last Friday and today, the 380 and Jet were selling for $250 and $170 across most retail channels we checked, respectively. (Note the 380 and Jet were selling for $240 and $144, respectively on Amazon.) While both these product lines did not return to normal pricing after Dec 2nd last year, on average both the 380 and Jet Series saw prices steadily increase for the remainder of the year. Over the final 3 weeks in December, the Braava sold on average for $267 across the channels we checked. Meanwhile, the Jet sold for $182 over that same channels and time period. Regardless, consumers were able to save $12 – $17 if they bought on Black Friday, Cyber Monday or the following week.

While iRobot could extend their seasonal discounts longer than they did last holiday season, our data suggests the time to buy your Roomba or Braava maybe now if you want to capture the best price.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

2017 Loup Ventures Holiday Gift Guide

Here are a few gift recommendations for the 2017 holiday season:

And here’s a look ahead to 2018 with some of the products we’re hoping for:

  • Apple HomePod | Apple’s foray into the smart speaker market.
  • Apple iPhone X Plus | We’d love a larger screen for our iPhone Xs.
  • Oculus Go | Oculus’ $199 standalone VR headset.
  • Magic Leap | Augmented Reality glasses.
  • Tesla Model 3 | Already on the market, we’re hoping to see shorter reservation times.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Robot Fear Index: 30.9

Like many in the tech space, we believe robotics is changing the nature of work; however, public perception of robots is still a question mark. We developed our Robot Fear Index to measure and track the average consumer’s perception of robots. We asked over 500 US consumers about topics ranging from their use of robots at home to their comfort level with self-driving cars. Then we distilled the data down to an index value that we will publish regularly. An index value of 100 suggests widespread and extreme fear of robots; an index value of 0 suggests minimal fear of robots.

Robot Fear Index: 30.9. Consumer adoption of artificial intelligence and robotics is already quite broad, and yet, fear of robots is also pervasive. We fear that they’ll replace our jobs or somehow overthrow us; and to be blunt, those fears are valid. That said, our 2017 survey indicates acceptance for these technologies continues to grow. Our most recent Robot Fear Index value of 30.9 (vs. 31.5 in late 2016) suggests that public perception of robots is essentially unchanged over the last year despite increased awareness of artificial intelligence, robotics, and the potential impact of these technologies. Notably, the related increase in media coverage of these issue does not seem be causing the rise in fear that we might expect. In fact, the slight year-over-year decline in our index value suggests slightly less fear of automation technologies.

Our most recent Robot Fear Index value of 30.9 (vs. 31.5 in late 2016) suggests that public perception of robots is essentially unchanged over the last year despite recent media coverage and increased awareness of automation technologies.

Survey Demographics. Of the 433 US consumers that responded to our 2017 Robot Fear Survey, 54% were male and 46% were female. Our survey population was also equally weighted across all age demographics, as shown in the exhibits below.

Use of Digital Assistants Growing Slowly. We continue to see digital assistants as an onramp to AI and robotics for many consumers. Our 2017 survey shows 69% of consumers have used a digital assistant (Siri, Google Assistant, Alexa) and roughly one-third use a digital assistant once a day or more, which is in-line to our results last year. When asked how many digital assistant consumers own, 21% said 1, while 14% indicated greater than 1.

Comfort with Robots is Up Slightly. We believe the comfort with AI is driving comfort with robotics. We asked consumers on a scale of 1 – 10 (1 being the most) how comfortable they are with using robots in many different settings including house cleaning (robot vacuums), healthcare (surgical procedures) and travel (self-driving cars). We were encouraged to see that 7 of the 8 categories we track saw a modest increase in comfort levels around robotics.

Domestic Robot Adoption Large Catalyst. We believe that consumer awareness of robotics is closely correlated to the rise of domestic robots within households. Domestic robots are classified as robot vacuum cleaners, mops and lawn mowers, and over the next 10 years we believe this category will be one of the fastest growing robot markets in the world. Our data shows that 75% of US consumers have yet to buy a household robot. Although we do not have the historical data to show y/y comparisons, last week, iRobot, a leading robotic vacuum and wet floor company, reported better than expected Q3 results and raised their FY17 revenue guidance for a third consecutive quarter (see note here). Given iRobot’s results, we believe the domestic robot market is seeing strong adoption domestically and internationally.

What Is Keeping Consumers From Using Robots? Many consumers have not yet adopted AI or robotic technology. When asked what has kept you from using robots, 41% (36% in 2016) of consumers said they are just not interested, while 29% (21% in 2016) believes robots are too expensive. That said, it was encouraging only 6% of consumers don’t use robots because it makes them nervous, which is down from 11% in 2016. We believe one of the the bigger fears when it comes to AI and robotics, is the risk of taking jobs. When asked when will AI and robotics cause significant job loss, 27% said within 5 years, 31% believe in 10 years and 24% anticipate significant job loss in 20 years. The remaining 17% of consumers did not believe robots would ever take our jobs.

Bottom Line. Following our 2017 Robot Fear Index survey, we believe consumer fear of robots is essentially unchanged, despite growing awareness of the potential risks of automation. We think our index value of 30.9 quantifies this cautious comfort with robots and we’re looking forward to updating the Robot Fear Index regularly as we track the progress of the robotics theme.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.