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.

MVP for Dummies: Robotic Enhanced Training Here to Stay

Visit to the toy department. We visited the robotics toy department in the form of a high school football field to test the Mobile Virtual Player (MVP) Drive, an $8,000 robotic tackling dummy that has been adopted this year by 15 NFL, 33 college, and 50 high school football teams. Today, the goal of Drive is to reduce practice injuries and improve or modify drills. In the future, MVP will enter new markets, including law enforcement and military training (think dynamic target practice).

Robotic enhanced training is the future. While there’s no substitution for replicating game contact and real life situations, there are many uses where robotics can improve readiness. After spending an hour with the product, we left as believers that robotic enhanced training is here to stay.

MVP for dummies. If you’re new to the robotic enhanced training field, like we are, this note will get you up to speed. First, the facts about the MVP-Drive (Football) and MVP-Tactical (Military and Law Enforcement) products:

  • Height: 5’8″
  • Weight: 190lbs
  • Speed: 20mph
  • Battery Life: 6hrs
  • Charging Time: 6hrs
  • Price: ~$8,000

Safety. Traditional football and military training dummies are stationary or require physical direction by a human to move. The MVP-Drive dummy is the first mobile, remote-controlled, self-righting (when it falls down it gets back up) training dummy. Anyone can operate the dummy using an RC remote control. As you know, for the past 10 years there has been ongoing research on concussions and the impact of conditions such as Chronic Traumatic Encephalopathy (CTE) on former NFL players. Concussions are typically associated with huge, one-off hits; however, concussions more often occur from repeated impacts such as the continuous head-to-head contact that occurs during practice. According to MVP, more than 50% of both injuries and concussions occur during practice at the high school and collegiate level. MVP Training dummies eliminate the need for player-on-player contact, while still allowing players to practice proper fundamentals with full-speed reps.

Improve or modify drills. Drive gives coaches an added element to drills to create different scenarios. For example, Drive could act as pass rushers, moving tackling dummies, or even help players practice pursuit angles.

Passed Loup Ventures ease of use test. Drive’s speed and ease of control surprised us. Below, Loup Ventures put Drive to the test. With Alex Schwappach at the controls, Mark Grangaard attempted his best Jadeveon Clowney impression using MVP-Drive.

Top: Jadeveon Clowney, Bottom: Mark Grangaard

What coaches say. As mentioned, MVP-Drive is used today by 15 NFL teams, 33 NCAA programs, and 50 high schools. The Pittsburgh Steelers were the first NFL team to use the MVP-Drive in practice, and Head Coach Mike Tomlin said Drive has had a material impact on player safety and performance. At the NCAA, level Rich Rodriguez of Arizona and Chip Kelly (recently) of UCLA have also made comments about safety and performance improvements from using Drive. We believe as long as coaches see a direct correlation between dummy usage in practice and regular season games won, adoption will increase.

Additional markets of law enforcement and military. Similar to the MVP-Drive, the MVP-Tactical dummy allows military and law enforcement units to practice real-life scenarios with a mobile target. The current military training options are either fixed or reactive and only allow static, two-dimensional short-range training. Current options are predictable, do not provide instant feedback, and most of all fail to replicate the stress of a true operating environment. Mobile solutions do exist, however almost all of them have restricted motion and are inviable for training in close-quarters combat, a critical function of military and law enforcement. The MVP-Tactical dummy has 3 armored layers and is designed to withstand a .50 caliber bullet, yet will still protect against shrapnel and ricochet. It’s a great improvement from existing options.

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.