iRobot Sweeping Hearts and Minds
Kevin Kelleher
11/11/05 - 11:08 AM EST
Michael Jackson. Santa Claus. Some poor shmo dressed up like the Ask Jeeves butler. As long as I can remember there's been somebody to ring the
Nasdaq opening bell.
On Wednesday, though, there was no
body ringing the bell. There was PackBot, the skinniest robot you've ever seen and the creation of
Burlington, Mass.-based
iRobot, which has pulled off one of the most successful and celebrated IPOs of the year.
Of course, PackBot wasn't designed for photo ops but for disposing
of bombs and hazardous materials -- so using him as a symbol of an IPO
opens the door to a lot of easy jokes. But they would be out of place
now: In its first two days of trading, iRobot's shares shot up to
$34.50, or 44% above their $24 offering price. In early Friday trading, the stock slipped nearly 3% to $33.55.
Even so, the occasion itself deserves notice because it can mean only
one of two things: the Nasdaq is so desperate to drum up new IPOs that
it's resorting to desperate gimmicks, or iRobot, best known for a
robotic vacuum cleaner named Roomba, actually belongs in the public
markets.
Early indications are that the latter case is right. That may
surprise skeptics used to hearing that someday robots will be
cheaply available to handle a lot of tasks we're too busy to get to
ourselves.
But with Roomba, iRobot is the first company to mass market a mobile
robot to handle such a task: cleaning floors. And since the Roomba
retails for about $300, it's been able to sell 1.5 million of them in
three years. A similar product called Scooba, which will clean and dry
floors, is due out next year.
"I don't think this is just hype," says David Menlow, president of
research firm IPO Financial Network. "It's a good piece of timing and
it's profitable. That makes it palatable in the eyes of investors."
In the first nine months of 2005, iRobot earned a profit of
$2.6 million, compared with a $189,000 loss a year before. Revenue
totaled $95.5 million, 66% higher than the year-ago period. And 87% of that
came from sales of Roomba and PackBot, which iRobot sells only to the U.S.
government, while the rest came from military contracts.
In the third quarter alone, iRobot made $52.5 million, or more than
half its entire revenue for the nine months. And that figure is likely
to rise even more this quarter as Roomba sales pick up steam during the
holiday season. Third-quarter profit came in at $9.7 million, or 19% of
revenue.
Although iRobot has only recently gained the attention of investors
and consumers alike, it's been around since 1990, when it was invented by three of its current top executives: CEO Colin Angle, Chairman Helen Greiner and CTO Rodney Brooks (who still heads MIT's Computer Science and Artificial Intelligence Lab).
A year later, the company produced its first robot, Ghengis, which
was built to explore the surface of other planets. And it has since
deployed robots to handle tasks from detecting and eliminating land mines
to exploring the pyramids of Egypt.
After a decade of government work, iRobot went after a holy grail of
robotics -- a mobile robot as useful and sophisticated as an industrial
robot but also as ubiquitous and affordable as a PC. Creating a
handleless vacuum cleaner that wouldn't bump into walls or fall down
stairs seemed like a good start.
"They took a huge risk," says Neena Buck, a vice president at
Strategy Analytics. But Roomba's success has become so big that other
vacuum makers are looking into making their own copycat versions.
iRobot's 21 patents and 25 pending patent applications, however, are likely to
keep it ahead long enough to develop other robots for consumers.
And that's where the real potential of iRobot lies. Buck says that after years of researchers working independently on a variety of robot technologies -- sensors, imaging, manipulation, reasoning algorithms -- the field of robotics is starting to become interdisciplinary enough to
make basic but useful robots for mass production.
"We're only starting to get to the point where all these
technologies are being put together in such a way that they can be used
in the consumer market," Buck says. Such robots are likely to first
address other basic chores such as fetching objects or washing windows.
iRobot's prospectus cites some research on its market's potential size:
The United Nations Economic Commission for Europe estimates $2.6 billion
in worldwide spending on household robots between 2004 and 2008. And the
Japan Robotics Association projected the global market for home robots
to reach $12.3 billion in 2010.
At Thursday's closing price of $34.50, iRobot's stock is trading at 265 times its trailing 12-month profit. But in the third quarter, the company
managed to boost revenue while keeping costs under control: R&D costs
were 5% of revenue, compared with 10% in the second quarter and 18% in
the first. SG&A costs were 15% of revenue, compared with 26% and 31% in
the two previous quarters, respectively. If that trend keeps up, the stock will approach a more earthly valuation.
If iRobot's shares are going to become as popular as its Roomba has
proven to be, it will have to act like the Roomba itself: It must suck up investor capital without bumping into any walls. So far, it's off to a good start.
