iRobot Doesn't Look Like a Sell Just Yet
Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
iRobot (NASDAQ: IRBT) shares fell sharply after a negative 1Q 2012 earnings report, as the company's net income for the quarter fell by more than 90 percent because iRobot sold fewer expensive Warrior robots to the Department of Defense. The military still bought iRobot's Firstlook robots, but these smaller robots don't offer iRobot the margins that its Warrior robots provide. Although this news is bad for the company in the short term, longer term trends still seem like they favor this company.
Not all of the news for iRobot was bad, as the company reported that more shoppers bought its Roomba 700 robots and its household robot sales increased by around 20 percent. Interestingly, the 1Q 2012 earnings report mentions another positive sign for the Roomba: international sales growth. Japanese shoppers bought more of iRobot's Roombas during the quarter, and iRobot mentioned that nearly three quarters of its consumer robots were purchased by shoppers outside of the United States, a figure that changed little from 1Q 2011.
The Roomba 700 series includes several higher end models that boosted iRobot's consumer robot margins. iRobot offers cheaper models for around $200, while selling the Roomba 780, which includes more features, for around $600. Sal Cangeloso, at Geek.com, reports that the Roomba 770 also seems like it has better AI than earlier Roomba models, which is important because rearranging a room so the Roomba can vacuum it properly can be an inconvenience. iRobot's wide product range gives the company an advantage because early adopters are willing to buy its higher end models so they can show them off, while iRobot can still pick up a few sales from bargain hunters. Although the original Roomba came out nearly 10 years ago, many homeowners don't have a robotic vacuum cleaner.
The original reason for the military's iRobot purchases seems like it will become more important in the future. Robots limit casualties because they can detect mines and see around corners without placing soldiers at risk. The Firstlook robot provides useful battlefield visibility capabilities because of its small size and durable design, as a soldier can pick it up and toss it to survey an area.
Several other companies also make robotic vacuum cleaners, although one vacuum cleaner company decided not to challenge iRobot recently. Peter Pachal, at Mashable, explained that Dyson, which is private, planned to wait until it could design a robotic vacuum cleaner that could clean a room as well as a traditional vacuum cleaner. Dyson's original typhoon vacuums outperformed traditional bag vacuums, while a robotic vacuum can seem like more of a toy than a replacement for a standard vacuum cleaner. Other manufacturers have been more eager to go after iRobot's market. Electrolux (NASDAQOTH: ELUXY.PK) offers the Trilobite line, while LG sells the Roboking in the United States and the Hom-bot in international markets. Samsung has its own robotic vacuum models, the Navibot and Tango View.
iRobot researchers have also created a sea faring robot that could help boost the company's sales. Scientific American reported that the iRobot SeaGlider helped scientists survey damage from the oil spill in the Gulf of Mexico. Oil exploration in harsh environments such as the North Sea could increase demand for the SeaGlider and other maritime robots. The Navy, oil companies, universities, and environmental organizations could all benefit from the SeaGlider's ocean monitoring capabilities.
Some of the Roomba's competitors, such as the Tango View and the Roboking, offer visualization capabilities along with their vacuum cleaning. A robotic vacuum cleaner that contains cameras can automatically move around a room and transmit video footage back to its owner. Robotic vacuum cleaner manufacturers have also been working on ways to make these devices produce less noise, and these vacuums already have a fairly small visual profile, so they do have surveillance potential. The Roomba and the Trilobite were not designed to take pictures, although a hobbyist can attach a webcam to these robotic vacuums. A mobile baby monitor or pet monitor could be very useful for a homeowner.
iRobot seems like it should recover as its robots find additional uses. Right now, iRobot has $6.66 in cash per share and zero debt, and levered free cash flow of $47 million according to Yahoo, so it doesn't look like it's likely to face any cash flow problems. iRobot also has a 4 star CAPS rating, so it looks like other Fools are confident about it. I think iRobot is a buy.
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