Opinion: IRobot’s future could be difficult after Amazon deal collapses

Some investors were expecting the news, especially after the European Commission in November wanted certain guarantees that the deal would not harm competition. Over the past three months, iRobot shares have fallen about 53%, with a sharp decline in January after Amazon failed to submit concessions to the EC. Earlier on Monday, iRobot said Amazon had terminated the $1.4 billion deal, saying there was no path to approval in the European Union. Its shares fell nearly 9% on Monday.

Read also: Amazon may cancel its iRobot deal, but there’s still hope for tech mergers and acquisitions.

Despite leading the home robotics market with Roomba, the company has faced tougher competition in recent years due to its major growth during the pandemic. Over the past two years, its revenue has fallen dramatically, and it reported a net loss for 2022. Another loss is expected in 2023, with full-year revenue down 25% to $891 million.

“IRobot has lost a fair amount of market share and has struggled over the last year or so,” said Adam Wright, an analyst at IDC, in an email. He said that although iRobot is a well-known brand that benefits from popular recognition, “competition in the smart home robotics market is fierce and other vendors such as Roborock, Ecovacs and Samsung are rapidly matching or exceeding the capabilities of smart home robotics devices. cleaning and cleaning of iRobot”. putting pressure on prices and profit margins.”

iRobot, based in Bedford, Mass., said it will cut 350 jobs and has hired a turnaround expert. The company’s CEO, co-founder and noted robotics expert Colin Angle, resigned, and the company’s chief legal officer, Glen Weinstein, replaced him as interim CEO. Angle will remain on the board until May and will 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-off product that can’t 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 has had difficulty branching outside of the core Roomba.

“Spruce Point has always maintained that, over the long term, robotic vacuum cleaners would become a mass commodity, with pricing and margins 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 extremely uncertain and difficult.”

The question of iRobot’s future product plans remains a big question. The company said in its statement that it will “pause” all development and work related to non-floor care innovations, including air purification, robotic lawn mowing and education.

But Ben Rose, president and analyst at Battle Road Research in Lexington, Massachusetts, believes iRobot will be able to survive on its own once it gets its house in order.

“They were probably making investments in different areas and not managing the company as tightly as they could or should have been, to reflect the market conditions they were in,” Rose said. IRobot has been through a recession in the past, after the military robot business saw a sharp decline in 2012-2013 as defense spending fell. He eventually sold his military robotics business.

Rose also believes the company can continue to bring new features and products to the main Roomba line, just like Apple Inc. AAPL,
-0.36%
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.

“They would be better off redoubling their efforts to improve 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 progress. I think it’s just a question of timing.”

Even so, the company faces a difficult road ahead.