$irbt, the leading robotic company valued as a vacuum cleaner re-seller
35m robots sold. 16m connected robots. And I do not know why they call it 12m connected customers while it should be connected households (iRobot app does not allow you yet to share a robot and you need to use 1 login in your household, so 1 customer = 1 household).
$irbt has $2.2b market cap (as of October 1st, 2021), no debt, and $415m in cash (q2 2021).
($2.2b–$0.415b)/12m = $148
So basically $148 for an existing customer-household. For the company which has been growing 22% CAGR for the last 5 years? I am a buyer. I think there is a chance that $irbt is an investment opportunity at this price.
I tried once to calculate an Apple USA customer value based on $aapl market cap and came to $10,000. Maybe $10k is fair for an Apple USA customer but $148 sounds cheap to me for an iRobot-customer-household.
Why do I think that $irbt is undervalued?
Set up
- Thanks to Hollywood's unlimited power, people think that robots should look like humans (androids). While the most successful (and practical) robots do not look like a human at all (e.g. a Roomba)
- iRobot’s management is, probably, old school. They are modest and careful in their public statements about the future, but it does not mean that they do not have a big vision
Roomba
- The coming growth of the robotic vacuum cleaner market is not well appreciated. To make it simple, kids, who have a Roomba in their homes now, will not vacuum floors manually in 10 years when they start living alone. Get it? iRobot may have 150m connected robots in 10 years.
- The competition in the robotic vacuum cleaner market is overestimated
- There is an impression that iRobot is an old tech company… while their iPhone moment happed only in September 2018 with the introduction of Roomba i7+ (smart maps and self-emptying base are the game changers)
Beyond Roomba
- iRobot’s expertise and future potential are underestimated (a handy “Roomba” with an arm)
- the potential of iRobot’s direct to consumer business is not well appreciated
Risk-reward. iRobot has no debt, I think it would be really hard for the company to go bankrupt. I would not be surprised with a temporary short-term 50% share price decrease (e.g. market crash) and anywhere between 10–50x return in the next 5–10 years.
How to value 150m 🤖 robots
How often do you hand wash your clothes? I guess that almost never. You probably were born in a family with a washing machine (or a laundromat nearby) and once you started living without your parents you got a washing machine or turned to the laundromat service.
Guess what? All those kids who have a Roomba at home now, how do you think they are going to vacuum their floors once they leave their parent's nest?
There are 128m households in the USA. Let us say that robot vacuum cleaners will reach the success of the dishwashing machines (50% penetration) in 10 years (2031). So 64m families will have a Roomba. And let us assume that iRobot’s share will decrease from 75% in North America now to just 40% (but still the leader). So 25m households in the USA alone, another 25m households internationally, 50m households globally.
My wild guess is that a family will have at least 3 robots on average (1.5 Roomba, 1 Braava, and 0.5 Terra). And I am not even mentioning the smart-helper iRobot robot here.
50m families * 3 robots = 150m online robots.
“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction” Bill Gates
How do you price the business with 150m online robots? The robots have to be upgraded, changed when they are old, they have to be serviced (filters, brushes, bags, accident-protection insurance?)… iRobot will need to build at least 40m robots annually just to replace the old robots (the robots are built to last 4 years).
40m robots sold annually at $325 average (q2 2021) sale price is $13b revenue
Average gross selling prices for robot units $325 (q2 2021)
or 150m * $29/mo (current iRobot Roomba i7+ subscription price) *12 months = $52b
Anyway, there is a good chance that iRobot revenue in 2031 will be much higher than iRobot’s $1.4b revenue of 2020.
if iRobot’s tag were $Roomba then iRobot’s market cap would be 10x higher already 😂
People love their Roombas. A tweet with a Roomba can get 1m ❤️ likes and 3k comments, while there are almost no discussions about $irbt. The retail investors HODL to their Roombas but not to $irbt, yet.
Beyond Roomba
Blame Hollywood
We do not understand the world because of Holywood 😂. People think that robots should look like humans (androids 🤖). While the form of a robot is designed to do a specific task efficiently. The most common robot you know (while maybe even not realizing that it is a robot) is, actually, a washing machine!
Thanks to Hollywood we think that android robots are robots and a Roomba is a vacuum, while the opposite is true. The current android robots are (yet) toys and a Roomba is a real robot.
Guess what? What robots were helping to clean the mess when the unfortunate Fukushima ☢️ nuclear disaster happened in Japan? The funny dancing Toyota robots (nowadays Boston Dynamics)? No, they were iRobot’s robots. iRobot’s management does not have a big mouth, they are busy building practical robots to make a difference.
“iRobot’s mission is to change the world by building practical robots that make a difference” March 23, 2010. iRobot Celebrates Two Decades of Innovation in Robotics
A handy “Roomba” with an arm 🦾 and brain 🧠
Amazon Astro is opening a new market for a smart house (butler?) robot.
iRobot has been developing robots of all kinds and shapes for 30 long years. Their knowledge advantage in robotic hardware 🦾 is not well noticed by the general public.
For many years iRobot has been improving software/brains 🧠 for their robots. The new Roomba j7 with a front-facing camera cleans your floor while also improving iRobot’s computer vision. Before a robot can come and help you (or bring you something), it has to understand the things around itself.
Colin Angle has promised a robot with an arm for a long while. He was pressed on his last Yahoo finance interview to tell a little bit more than he usually does.
“The enabling technology that stands in front of a robot having arms is really understanding where anything is. There is no point in having arms if I do not know where the kitchen is and where the refrigerator is, so I can’t possibly grab a beer and bring it to you, which of course would be a great thing. So with the j7 technology, we are launching right now, the ability of the robot to understand its environment and to start understanding where things are, is enabling for the next steps. You might actually want to have the home cleaned up before you start the vacuum which would be the great use of manipulation or other great ideas for a robot helping with dishes or folding the laundry. I think what we are seeing today is the foundational intelligence of making a huge leap forward which will enable the robots to do more” starts at 5:40
And iRobot has been working on improving their robots’ brains 🧠 for a long time. Few people have taken notice.
“Something that probably few people know, our (iRobot deployed fleet of machine learning platforms is rivaled only by Tesla” Colin Angle, iRobot CEO, 2021 Global Tech Conference at Bank of America, the webcast link time 21:40
Divers
The Competition
The only real competition (floor cleaning) to iRobots are Ecovacs and Roborocks. The robotic cleaner market is not so easy to enter as many may think. The complexity with robots is that companies have to get 2 things right (hardware and software). Obviously, nobody needs a dumb robot and nobody needs a robot that breaks every 3 months (a robot vacuum is used many times more often than a regular vacuum cleaner so they have a high heavy-duty requirement).
And all the rest RVCs manufactures are selling cheaper than the market leaders, so they cannot make good profits to support R&D, therefore their robots will be always behind. They are not the competition, they are an invitation for an upgrade. Like every user of a cheap smartphone wants to upgrade, most buyers of the cheap robot vacuums will upgrade to the market leaders once they have a chance.
Disclaimer: It is not investment advice. Please do your own due diligence. I am biased toward the people and products I like. Any investment decision depends on your personal situation which I am not aware of. Sometimes I change my mind and I will not be able to inform you about that.
