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.

iRobot Sweeps Away Competitive Threats

Special thanks to Austin Bohlig for his work on this note. 

iRobot (IRBT) continued to show their leadership in the home robotic space, reporting Sep-17 results essentially inline with analyst expectations and more importantly raised Dec-17 revenue guidance by 5%. Despite elevated worries about increased competition heading into the quarter, iRobot continues to exceed expectations and experience 20% plus revenue growth over the past 3 quarters. Sep-17 results shows the perceived threat from competition is overblown, and indicates iRobot is defending their leading home robotics position. Although we just launched coverage on iRobot last week (note here), we have become incrementally more upbeat on the company’s future and leadership role within home robotics space following these stellar results.

Sep-17 Qtr Highlights. Total revenues grew 22% y/y in the Sep-17 quarter, and they raised full year guidance from $840 –860 to $870 – 880, which implies 32% y/y growth at the midpoint. iRobot sold 905k home robot units in the quarter, of which 86% were Roomba vacuums and 14% were Braava wet floor products. Both categories experienced strong y/y growth in many regions across the globe, but continued success in the U.S. and EMEA continues to drive upside. Robust demand in both these regions will continue into 2018, and iRobot is increasing full year 2017 growth expectations in U.S. and EMEA, to 40% and 45% respectively.

An Early Thought On 2018 Guidance. It’s worth noting when the company reports Dec-17 results in the month of Feb-18 we would expect slightly conservative guidance for 2018 given managements history of setting a beatable bar.

The Big Picture, Plenty of Room To Grow.  The most penetrated robotics vacuum market in the world is the U.S., but less than 10% of U.S households own a robotic vacuum. With plenty of room to run both domestically and internationally, the future is bright for iRobot. The driving catalyst to increase robot adoption is increasing consumer awareness, and as consumers become more comfortable with robotic vacuums, this will cause increase demand for other domestic robot categories (mops and lawnmowers). Over the next 10 years we anticipate the entire domestic robot category to see double-digit unit growth annually, and by 2025 believe 26.5M domestic robots will be sold, which will equate to a $5.7B market opportunity. See our domestic macro model here. While iRobot is well positioned in the vacuum and wet floor markets, the company’s industry leading robotics expertise will unlock many opportunities in other domestic markets.

No Hint At Lawnmower…Yet. We mentioned last week that iRobot will hint to their entrance into the lawn mower category on the Sep-17 or Dec-17 earnings. They did not mention the lawn mower on this call, and more broadly would not comment on new products. While iRobot did 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. Most importantly this a “when”not an “if”, they will introduce a robotic lawnmower. We’re modeling for the lawn mower will 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 Revisions. We raised our near term estimates to reflect the company’s updated guidance, and now expect the company to sell 3.2M vacuums and 503k wet floor products in 2017. Looking longer term, we continue to believe both the Roomba vacuum and Braava wet floor product line can experience 20%+ unit and revenue growth through 2020, and believe it is very likely the company will introduce a lawnmower over the next 12 months. The robotic lawnmower could add $60M in incremental revenue over the first 12 months, but grow to a $200M business by 2022. See 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.

iRobot to Play Leadership Role in Home Robotics Space: Introducing 5-Yr Model

Special thanks to Austin Bohlig for his work on this note. 

Today we’re rolling out our iRobot 5-year model, joining Loup Ventures’ Apple and Tesla model coverage. We feel it’s important to write on iRobot even though it’s a small company, $2.1 billion market cap, because iRobot will likely play a leadership role in the evolution of the home robotics space over the next decade.

Due to advancements in robot functionalities and lower costs, robots are quickly becoming a common technology in our homes. These domestic robots are systems used to perform household chores such as vacuuming, mopping, and mowing the lawn. While home robot adoption has accelerated in recent years, penetration rates remain low and we foresee the highest growth still to come.

Leading the domestic robot charge is iRobot (IRBT), which is the industry leader in robotic vacuums and wet floor (aka mops) products. Driven by iRobot’s robust robotic engineering expertise, as well as brand awareness, we believe iRobot will be the leading provider of home robot technology for the next several years. Given iRobot’s leadership in robotics, a space we spend a lot of time working on, we’ve developed a 5-year model for the company (here).

Domestic Robot Market Inflecting

We estimate that 5.0M domestic robots were sold in 2016, which is up 24% from the prior year, and the total market value grew 23% to $1.4B. While iRobot does not compete in all domestic robot categories, they do lead the largest (vacuums) and fastest growing (wet floor) markets. The robotic vacuum market accounts for the largest percentage (70%) of domestic robot spend. In 2016, 4.1M robotic vacuums were sold, up 18% year/year, and the market value grew by 20% over that same time to ~$940M. The faster sales growth was driven by faster growth among higher-end systems. The global robotic vacuum market has grown ~18% per year since 2012, but only accounted for ~21% of total vacuum spend in 2016. Given penetration rates remain low, we believe there is plenty of room for multiple double-digit years of growth to come.

Consumer awareness for robotics is increasing, and as households begin to adopt this technology they are becoming more comfortable with other forms of robotics, such as wet floor products and lawnmowers. While both these markets only account for 5% and 25% of domestic spend, respectively, both are expected to see 20%+ annual growth through 2025. Over the next 10 years we anticipate the entire industry to see double-digit unit growth annually, and by 2025 believe 26.5M domestic robots will be sold, which will equate to a $5.7B market opportunity. See our domestic macro model here. While iRobot is well positioned in the vacuum and wet floor markets, we believe the company’s industry leading robotics expertise will unlock for them opportunities in other domestic markets.

iRobot’s Dominance Puts Them In a League of Their Own

To date, iRobot primarily competes in the robotic vacuum and wet floor sub-categories; however, as shown in the graph below, they control 60%+ share in each of these markets. Over the last couple of years, increased competition has been the biggest risk to iRobot’s robot vacuum business (which accounts for ~90% of all home robot sales) with companies such as Dyson, Samsung, Ecovacs, and Shark Ninja entering the market. Yet, iRobot continues to exceed expectations and experience strong revenue growth over the last several quarters. As we highlighted in a note following the company’s Q2 results, we believe the company’s continued success shows the perceived threat from competition is overblown and, more importantly, indicates that developing a highly functioning robot is difficult.

Furthermore, the competition is targeting the sub-$500 robotic vacuum market, but as the industry data above shows, consumers are shifting towards iRobot’s higher-end Roomba 900 series products, which retail for $700 – 900. We believe iRobot has established themselves as the go-to premium robotic vacuum brand. Competitors will likely struggle to compete in this area of the market. More competition may even be a net positive for iRobot because it will continue to increase consumer awareness. Given all domestic robot markets are significantly under penetrated there is plenty of room for more than 1 robot company to flourish. While iRobot has not yet seen the increased competition in the wet floor market, we do anticipate more players to enter the space as the market opportunity grows. Similar to the vacuum space, we anticipate iRobot will maintain its leading position.

Many New Products To Come – Robotic Lawnmower in 2018 Likely

Since iRobot sold off their defense business in 2016, the company has been fully focused on bringing automation to the home. In the near term, we anticipate iRobot will continue to introduce new Roomba and Braava products that improve on performance, battery life and other unique features, such as Wi-Fi capabilities. However, iRobot is one of the most innovative robotic companies in the world, and we believe there technology is transferable across several robot domains.

We expect iRobot to introduce a robotic lawnmower in 2018. While the company has not disclosed when the product could be available, they have indicated they are pursing it. We believe iRobot will hint at introducing a lawnmower over the next two earnings call, and introduce a robot lawnmower in the Spring of 2018. This is not an “if”, but more of a “when” they will introduce a robotic lawnmower; if not in 2018, a 2019 launch is very likely. Due to the average North American lawn being too large for a robotic lawnmower to cut efficiently, iRobot will likely target Europe and APAC countries for which the technology is better suited.

5 Year Outlook

We expect iRobot to ship 3.5M total units in 2017, which is up 22% over the prior year. We expect 3.1M or ~85% of units sold will be Roomba vacuum cleaners, which is an acceleration of 19% from the previous year. While the remaining ~15% will be in the form of Braava products, this category is beginning to see meaningful momentum as the company continues to contribute higher marketing dollars around this product line. We believe the company will sell ~464k wet floor products in 2017, which is up 50% year/year. Looking longer term, we believe both Roomba and Braava categories will see robust growth over the next several years. Driving catalyst in both categories will be increase consumer awareness and strong robot adoption in both domestic and international markets. Furthermore, we believe the company will introduce a robotic lawn mower in 2018. While it will take time for this category to be material to the story, eventually it will be another positive tailwind. As it relates to the P&L, we believe the company will see 20%+ revenue growth through 2020, due to strong demand for many products across the company’s portfolio. However, we believe iRobot will continue to see stronger demand for their high-end systems, which will drive ASPs modestly higher through 2019. This coupled with modest operating leverage, iRobot will experience 25%+ operating income growth through 2022.

Bottom Line

We believe that adoption of robots within in the home is quickly approaching an inflection point as more consumers are looking to automate daily household chores such as vacuuming, sweeping, mopping, as well as mowing the lawn. Driven by iRobot’s robust technology expertise and strong brand awareness, we anticipate iRobot will be the leading provider of home robot technology for the next several years.

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.