When iRobot Corporation (NASDAQ: IRBT) unveiled its Roomba 880 robotic vacuum in November, 2013, some investors were surprised by its premium $699 retail price. To be fair, though, iRobot has openly stated its goal is to dominate the premium price point category for robotic vacuums. And it appears to be working so far. Nearly two years after its release, the Roomba 880's retail price hasn't budged. And during iRobot's most recent quarter, Roomba 800 series sales increased 24% year over year in the U.S., effectively propping up iRobot's Home Robot segment amid stubborn macroeconomic headwinds overseas.
That's not to say it's a big surprise. Thanks to its powerful new brushless design, I've already argued the Roomba 880 represented the Roomba line's biggest leap forward since the original Roomba was released way back in September 2002. Come to think of it, as the proud owner of an aging Roomba 650 myself, I've been disappointed that iRobot hasn't given me the chance to purchase one of its highest-end bots at less than full price.
So you can only imagine my delight when this message from iRobot hit my inbox earlier this week:
That rare 15% discount brings the prices of the Roomba 880 and Roomba 870 -- the latter of which launched a few months later sans a remote control and room-to-room cleaning capabilities -- to roughly $595 and $510, respectively.
But this also raises the question: If Roomba 800 series vacuums are still selling so well, why would iRobot undercut its margins and discount them now?
Happy birthday, Roomba! Meet your replacement
The answer: Because something even better is on the way.
First, note the timing. The original Roomba was launched on Sept. 16, 2002, and iRobot has been known to celebrate past Roomba-versaries with promotions -- albeit typically limited to things like free shipping or replacement filters and brushes. But considering its current promotion ends this coming Saturday, Sept. 12, I wouldn't be the least bit surprised if iRobot marks the occasion by unveiling its next-generation Roomba the following week.
After all, during iRobot's subsequent earnings conference call last month, CEO Colin Angle promised a new "navigating home robot will be launched in the second half" of 2015. And while Angle wouldn't offer further details at the time, earlier this year he hinted 2015 is an "important year for iRobot" as it works to integrate and commercialize "next-generation mapping navigation technology more broadly into our home products."
For additional perspective, when iRobot acquired quasi-competitor Evolution Robotics in late 2012, it not only inherited the company's "Mint" floor sweeping product line -- which has since been rebranded as "Braava" -- but, more than anything, emphasized the importance of Evolution Robotics' patents surrounding visual simultaneous localization and mapping (vSLAM) technology.
In this case, rather than relying on Roomba's current physical bumpers, infrared, and acoustic sensors, iRobot's vSLAM almost certainly involves using low-cost cameras to help Roomba more effectively navigate its surroundings much in the same way iRobot's enterprise-centric Ava 500 telepresence robots already do.
In addition, it's possible iRobot might also introduce cloud connectivity, through which Roomba could create, store, and retrieve high-fidelity maps of its environment. During iRobot's fourth-quarter 2014 call in February, Angle suggested iRobot plans to optimize Ava's mapping technology, elaborating, "[W]e expect this mapping capability, coupled with Internet connectivity, to move us from a leader in the robot vacuum cleaner market to a technology company developing navigation connected devices for the home."
To the patient go the spoils
Investors shouldn't get terribly excited for the near-term impact. Expected sales of this new robot are already included in iRobot's full-year guidance, which calls for 2015 revenue of $625 million to $635 million (up 12.2% to 14% from 2014), and earnings of $1.25 to $1.35 per share (or flat to up 8%). Analysts, on average, are anticipating revenue and earnings of $627.3 million and $1.28 per share, respectively.
But if one thing is clear based on Angle's comments, it's that whatever iRobot has planned for next month is only the beginning of a broader trend for both the company and the robotics industry as a whole. With shares currently trading at a reasonable 17.6 times next year's expected earnings, I think iRobot stock remains a promising long-term bet for patient investors willing to watch iRobot secure its leadership position as that trend unfolds.