The future of iRobot Corp.
IRBT,
is likely to be rocky as it faces tougher competition in the home-robotics market on its own.
The Roomba maker said it will now focus on its own restructuring and becoming profitable again, after waiting almost 16 months for regulatory approvals for a proposed merger with Amazon.com Inc.
AMZN,
that ultimately did not all come.
The news had been expected by some investors, especially after the European Commission in November wanted certain assurances the deal would not harm competition. In the past three months, iRobot’s shares have fallen about 53%, with a steep drop in January after Amazon did not file concessions with the EC. Earlier Monday, iRobot said Amazon had terminated the $1.4 billion deal, saying there was no path to approval in the European Union. Its shares tumbled nearly 9% on Monday.
Also read: Amazon may scrap its iRobot deal but there’s still hope for tech M&A.
While a leader in the home-robotics market with the Roomba, the company has faced tougher competition in recent years since its big growth spurt during the pandemic. In the past two years, its revenue has tumbled sharply, and it reported a net loss for 2022. Another loss is expected for 2023, with full-year revenue dropping 25% to $891 million.
“IRobot has lost a fair amount of market share and struggled for the past year or so,” said Adam Wright, an IDC analyst, in an email. He said that while iRobot is a well-known brand that benefits from popular recognition, “competition in the smart-home robotics market is fierce, and other vendors like Roborock, Ecovacs and Samsung are quickly matching or exceeding the capabilities of iRobot’s cleaning devices and putting pressure on prices and profit margins.”
Bedford, Mass.-based iRobot said it would cut 350 jobs, and it has hired a turnaround expert. The company’s chief executive — co-founder and well-known roboticist Colin Angle — stepped down and the company’s chief legal officer, Glen Weinstein, replaced him as interim CEO. Angle will remain on the board until May and advise iRobot for up to 12 months.
One issue that has plagued the company for years is the question of whether it is a one-hit wonder that cannot successfully expand and grow beyond its focus on the home-cleaning market. Spruce Point Capital Management, a short seller, pointed out in reports on iRobot in 2019 that the company struggled branching outside of the core Roomba.
“Spruce Point has always argued that in the long run, robotic vacuums would become commoditized, with prices and margins coming under pressure,” said Ben Axler, founder and CIO of Spruce Point, in an emailed statement. “IRobot’s inability to make money currently makes its path forward highly uncertain and difficult.”
The issue of iRobot’s future product plans remains a big question. The company said in its statement that it would “pause” all development and work related to non-floorcare innovations, including air purification, robotic lawn mowing and education.
But Ben Rose, president and analyst at Battle Road Research in Lexington, Mass., believes that iRobot will be able to survive on its own, once it gets its house in order.
“They probably were making investments in different areas, and not running the company as tightly as they could have or should have been, to reflect the market conditions they were in,” Rose said. IRobot went through a downturn in its past, after its military-robot business saw a big decline in the 2012-’13 time frame, when defense spending dropped. It ultimately sold off its military-robotics business.
Rose also believes the company can continue to iterate new features and products from the core Roomba line, much as Apple Inc.
AAPL,
does with the iPhone.
The present, however, is not the right time for the company to focus on new product development, IDC’s Wright said.
“It would be better for them to double down on improving their existing portfolio of devices and services and finding ways to beat the competition on price,” Wright said. “But iRobot certainly has a track record of innovation, and so I expect they will keep an eye on this moving forward. I think it’s just a matter of timing.”
Even so, the company is going to face a tough road ahead.
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