Over a year after Amazon (AMZN 2.61%) announced its intention to acquire iRobot (IRBT +0.00%), the deal fell through following a mutual agreement to terminate the deal. Now, the company best known for its Roomba line of robot vacuum cleaners is trading near an all-time low, and will need to stand on its own wheels.
Let's examine why Amazon's acquisition of iRobot fell through, how iRobot is pivoting, and whether it's worth investing in the consumer robot company.
Why did the acquisition fall through?
In late 2022, Amazon announced its plans to acquire iRobot through an all-cash transaction valued at $1.7 billion with a buyout offer of $61 per share. That offer was modified in July 2023 when iRobot incurred an additional $200 million in debt to support its operations, resulting in a new buyout price of $1.4 billion, or $51.75 per share.
The deal was scrapped altogether in January 2024, when both companies mutually agreed to terminate the acquisition, citing regulatory hurdles after the European Union's antitrust regulator was reportedly moving to block the deal.
The failed deal between Amazon and iRobot represents the latest in a series of proposed acquisitions thwarted by regulatory bodies. Another recent instance includes JetBlue's unsuccessful bid to acquire Spirit Airlines.
OTC: IRBT
Key Data Points
What happens to iRobot now?
Since news broke of the failed acquisition, iRobot's stock has tumbled to nearly an all-time low of $9.50 per share, or roughly 82% below its modified acquisition price of $51.75. Beyond the stock price, iRobot will receive a termination fee of approximately $75 million from Amazon, which the company plans to put toward repaying its recent $200 million loan.
iRobot recently announced that its Chairman, CEO, and Founder Colin Angle would step down after 33 years with the company. In turn, the company appointed its Executive Vice President and Chief Legal Officer Glen Weinstein as interim CEO.
Additionally, iRobot disclosed that it was laying off 350 employees due to the failed acquisition, representing 31% of the company's workforce. Looking ahead, the company will reduce its research and development expenses by roughly $20 million, cut marketing expenses by $30 million, and sublease its corporate headquarters in efforts to cut costs.
Finally, the company hopes to improve its margins with $80 million to $100 million in savings "through the execution of agreements with joint design and contract manufacturing partners."
Image source: Getty Images.
Digging into iRobot's financials
If iRobot's restructuring and expense-cutting weren't enough of a clue, its business is struggling -- and its financials reflect that fact. In 2023, iRobot generated $891 million in revenue and produced a net loss of $305 million, representing a 25% and 6% year-over-year decline, respectively.
According to management, iRobot's products are experiencing a decline in popularity "amid relatively sluggish consumer spending." In 2022, the company successfully shipped 4.2 million vacuum and mopping units. However, this figure dropped nearly 28%, dwindling to 3 million units in 2023.
Looking ahead, management projects that iRobot will generate between $825 million and $865 million in revenue for 2024, meaning another year of declining sales. Additionally, management's outlook includes a net loss per share improvement from $11.01 in 2023 to between $3.13 and $2.70 in 2024. Notably, management believes it can improve gross margin (a key metric for a consumer goods company demonstrating its ability to sell its goods at a favorable price) from 22% in 2023 to between 31% and 33% in 2024.
Still, given the increased competition iRobot faces, the company is unlikely to achieve a gross margin anywhere near its high-water mark of 51% in 2018.
IRBT Gross Profit Margin data by YCharts
Is iRobot stock a buy right now?
iRobot is a company in peril. The good news is that it's taking extreme steps to reverse its trajectory. The company's net debt (total debt minus cash and cash equivalents) was only $16 million at the end of 2023, and it will certainly improve with Amazon's termination fee. That should give iRobot some time to right-size its business without being overwhelmed by servicing its debt.
Nonetheless, a struggling company like iRobot with consistently falling revenue can only rely on restructuring and cutting costs for so long. Eventually, it will need to stabilize or grow its sales so management can figure out how to turn a profit again. Until then, investors should stay away from iRobot because there is no telling how big the current mess could get.
