Why iRobot Corporation Will Clean Up for Investors

iRobot's (NASDAQ: IRBT) most recent quarter has investors dancing in the streets. The company handily beat both earnings and revenue estimates. In fact, management felt so good about their outlook that they raised guidance for the year, and in a separate announcement, the company said it would acquire its largest European distributor Robopolis.

The company's bread and butter is home robotics with four product types available for purchase. These robots help consumers clean and wash floors, maintain swimming pools, and even clear out gutters. That may be a wide range of capabilities, but the products share a focus and vision that will be key to the company's success going forward.

Consumers are No. 1

iRobot used to make robots for military and police applications, in addition to consumer products. That all changed in early 2016 when the company sold off its military business to Arlington Capital Partners. Now, its engineers are focused on the growing popularity of robots for the interconnected home. Today's offerings are just the first examples of what the company believes it can bring to market.

And the company has a lot of experience -- it's been in business for more than 25 years and has sold more than 18 million consumer units.

The current line-up

The company has four robot types or product lines in its portfolio:

  • Mirra is a residential pool cleaning offering that was developed by Aquatron and sells under the iRobot brand. 
  • Looj is a gutter cleaning robot that homeowners can use to save time and maintain gutters safely.
  • Roomba is the marquee product that the company derives most of its sales from. A robotic floor vacuum cleaner -- it was introduced by the company in 2002. 
  • Braava, the latest floor cleaning introduction, is the company's wet floor mopping robot line.

The Roomba and the Braava make up the lion's share of the company's business. iRobot's strategy is to first release new technology -- such as the ability to connect with the Amazon Echo/Dot -- in its highest-end products. Over time, lower price models roll out with those same features as the trend matures.

A key ingredient of the company's operating model is to outsource the production of all its products. Four contract manufacturers located in China build the company's robots. This allows the company's more than 600 employees to focus on engineering design, marketing, and sales. It also gives shareholders an asset-light business model, as evidenced by a pristine balance sheet -- the company has no long-term debt.

Strategic vision: You ain't seen nothing yet

Last year, iRobot announced an agreement with Amazon Web Services (AWS) that will allow the company to tackle opportunities in the connected home. It currently has products that will vacuum and mop floors using technology that includes mapping, visual navigation, and cloud connectivity.

But future plans can be summarized in just one sentence from the 2016 annual report:

The smart home is a big opportunity for the company, and a second sentence from the annual report clarifies what iRobot sees as its biggest strengths:

It's no wonder that investors got excited earlier this year when CEO and co-founder Colin Angle explained in an interview with Reuters how iRobot mapping technology could give home owners an option to share spatial information about their homes to third-party companies to enjoy the full benefits of a smart home.

If iRobot products can supply the mapping data, that makes this small company quite an attractive asset. That's likely part of the reason SoftBank recently took a stake in the company.

iRobot has more than 1,000 patents to its name and spends $100 million annually on R&D. That level of investment and expertise, all leveled at the consumer robot space, makes it a compelling player in a smart home market that is still very early in its development.

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Frank DiPietro owns shares of Amazon and iRobot. The Motley Fool owns shares of and recommends Amazon and iRobot. The Motley Fool has a disclosure policy.