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.