While iRobot (NASDAQ:IRBT) largely beat quarterly expectations, the company's stock price fell due to lower-than-expected guidance. The company reported a quarterly revenue of $118M, beating analyst expectations of $116M. The company also reported a healthy EPS of $0.16, handily beating analyst expectations of $0.10. On the other hand, the company had a quarter 2 revenue guidance of $143M-$146M and an EPS of $0.02-$0.06, which was way below analysts' previous revenue and EPS estimates of $157M and $0.31.
Despite the soft guidance given during the quarterly report, iRobot's management is still optimistic about the company's future, with CEO Colin Angle stating, "Our first quarter results exceeded our expectations. Home Robot revenue was up slightly over last year while Defense & Security Robot revenue grew 17%. We are off to a good start in 2015 as we weather global macros and invest to drive Home Robot growth."
The management is right to be optimistic about iRobot's future, as the company has much to look forward to. While iRobot's Home Robot product line still drives the company's sales, evidenced by the fact that the Home Robot product line accounted for a stunning 91% of total company revenues in 2014, the company is diversifying into other robotic arenas. Such product diversification is extremely promising for the company, as such robotic segments as defense & security, or telepresence have enormous growth potential. As iRobot continues its pace of product expansion and innovation, the company should see tremendous growth in the long-term.
Product Offering Expansion
While iRobot is still primarily involved in consumer robotics, opportunities in robotic segments outside of this arena are becoming more promising. With the rapid advancements in robotic AI, or just AI in general, robots are starting to become exponentially more capable. Just recently, for instance, iRobot showcased its telepresence AVA robot, which is able to allow for remote presence communication with unparalleled freedom of movement. A product such as this should prove to be incredibly useful, especially if the technology matures even further. Such a product just scratches the surface of the potential applications for robotics as robotic technology/AI becomes more sophisticated.
Robotic defense/security may prove to be one of the most profitable robotic segments in the long-term, especially given the wide potential applications of such robots. The fact that iRobot's Defense & Security segment grew so rapidly (17% revenue increase YOY) is indicative of the fast paced advancements being made. The company sold approximately 5,000 unmanned ground vehicles in the quarter, marking a significant increase compared to past years. iRobot is even planning to introduce a robotic lawn mower, although this product is still a ways off. Regardless, iRobot is making the right decision in expanding its product offerings, especially in light of the exponentially improving capabilities of robotic technologies.
Here is a look at the company's Defense & Security product line-up. This segment should become of increasing importance for the company's future.
First Mover's Advantage
iRobot's move to expand its product offerings will not only increase the company's prospects in the short-term, but it will also allow the company to maintain a dominant long-term presence in more robotic segments. This is simply because iRobot has a near complete monopolization of the pure-play robotics industry thus far, which means that in any robotic arena that iRobot decides to diversify into, be it defense, lawn mowers, etc, the company will likely have a long-term advantage due to its first mover's advantage. This scenario has already played out in the consumer robotics arena, in which iRobot's Roomba product completely dominates the robotic cleaning arena.
The robotics industry is poised to expand dramatically in the coming years, especially in light of the faster-than-expected advancements in AI (e.g. increasingly complex motion detection, more sophisticated machine learning capabilities, etc). iRobot's first mover's advantage should allow the company to take full advantage in this AI explosion. Given the inherently exponential nature of AI advancements, many investors are underestimating iRobot's future potential. While this may not be apparent right now, the progress being made at the forefronts of AI research is unmistakable. As robotic technologies continue to advance, iRobot's products will become ever more complex. With iRobot's products able to perform increasingly complex tasks, the addressable market for the company should widen enormously in the coming years.
While iRobot has a dominant positioning in an incredibly promising industry, the pure-play robotics market is still extremely small. This means that large players could potentially enter the pure-play robotics market and take share away from iRobot relatively easily. While the advancements of robotic technology will be great for iRobot, it would also likely attract tech industry standouts. Companies such as Apple (OTC:APPL) or Google (NASDAQ:GOOG) (NASDAQ:GOOGL) could easily take market share from iRobot if these companies were incentivized to do so.
The industry may already be experiencing this, as Samsung (OTC:SSNLF) recently released a robotic vacuum extremely similar to that of iRobot's. While the threat of more well-financed and technically proficient competition is certainly very real, iRobot would very likely get acquired if any large technology companies were truly interested in the robotics industry. Even if an acquisition were not to happen, iRobot should still have a large enough presence in the robotics industry to maintain a large market share in the long-term no matter what.
iRobot's revenues have consistently rise over the past four years, from $400.95M in 2010 to $556.85M in 2014. The company experienced even more pronounced growth in net income during this period, from $25.51M in 2010 to $37.8M in 2014. While this growth has certainly been impressive, progress is robotic technology is starting to accelerate at a faster rate, which likely means that the company will experience an even sharper uptrend in the years to come. In fact, the company's financials have already started accelerating somewhat in the last few years, which bodes extremely well for the future.
While iRobot has a somewhat high trailing P/E ratio of 25.72, this figure still underestimates the company's future earnings, especially given iRobot's complete dominance in the pure-play robotics arena, the accelerating progress of robotic technologies, and iRobot's increasing product expansion. iRobot's current valuation of $986M severely underestimates the company's future potential. With the pure-play robotics industry just starting to take off, iRobot is extremely well-positioned.
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