Will iRobot Stock Recover?

The termination of iRobot Corporation’s acquisition, poor financials, and expected losses this year have led to the company’s share price plunging significantly. Against this backdrop, are rays of light shining about an upcoming recovery? 

Robot and home innovation product maker iRobot Corporation (NASDAQ:IRBT) is undoubtedly having a tough time. Shares of IRBT have fallen by 22% over the past month and more than 77% year-to-date. 

Amazon (NASDAQ:AMZN) backed out of the previously announced deal to buy the company causing investors to dump the stock because of the company’s poor financials and weak guidance for the current year.

Is there further downside left in the stock, or is it a bargain now?

Why Is iRobot Stock Tanking?

Amazon’s proposal to acquire iRobot for $1.4 billion was terminated earlier this year due to regulatory issues. In November 2023, the European Commission said it envisions the deal affecting competition in the robot vacuum cleaner market, as many of IRBT’s competitors sell their devices on Amazon.   

While a $94 million termination fee paid by Amazon could help IRBT pay off its $200 million loan from private equity firm Carlyle Group last year, this fee doesn’t provide sufficient support to enthuse investors.

IRBT’s announcement that it will lay off approximately 31% of the workforce as part of its restructuring initiatives adds to the concerns about future viability. Total restructuring charges are expected to lie between $12 and $13 million.

With all that said, the launch of the Roomba Combo® Essential robot on April 4 might have relieved the company. However, it has not yet won over most customers. iRobot is marketing the product as an easy-to-use combination of vacuum cleaner and mop in one machine.

Yet, this machine has some disadvantages compared to Roomba’s more expensive robot vacuums and mops. It is anticipated that it will not provide as strong a cleaning performance as some of Roomba’s more advanced models.

P&L and Balance Sheet Woes Worsen

For the fourth quarter of fiscal 2023, which ended December 30, 2023, iRobot’s revenue declined 14.1% year over year to $307.54 million. Non-GAAP gross profit fell by 32.8% from the year prior to $58.21 million. Moreover, the company reported a non-GAAP operating loss of $45.33 million.

Additionally, iRobot’s non-GAAP net loss and non-GAAP net loss per share widened 20.3% and 18.2% from the previous year’s period to $50.66 million and $1.82, respectively.

Operating losses rivaled balance sheet woes. As of December 30, 2023, the company’s total current assets stood at $465.49 million, compared to $528.30 million at the end of 2022.

Moreover, total assets came in at $733.70 million, down from $835.44 million as of December 31, 2022. And as if that’s not enough, the company’s total liabilities also increased to $537.21 million, up from $359.73 million on December 31, 2022.

For the year ended December 30, 2023, iRobot’s cash outflow from operating activities rose 27.5% from the previous year to $114.79 million. The company’s cash outflow from investing activities was $3.10 million, compared to a cash inflow of $2.25 million in the prior year.

Will iRobot Stock Recover?

With Amazon no longer acquiring iRobot, revenues declining and liabilities rising, it’s unlikely that iRobot stock will recover soon.

Last month, management stated that revenue for the first half of 2024 is expected to decline in the high teens to low 20 percentage level on a year-over-year basis, with the second quarter expected to be the weaker one as orders are expected to shift into the third quarter.

For the first quarter of fiscal 2024, which ended March 20, 2024, iRobot expects non-GAAP revenue to range between $137 and $142 million. Moreover, it anticipates non-GAAP operating loss and net loss per share to be between $47 and $43 million and between $2.13 and $2.00, respectively.

The figures represent a downward trend. Revenue for the first quarter of fiscal 2023 reached $160.29 million, while non-GAAP net loss stood at $1.67.

Moreover, for the fiscal year 2024, the company is expected to report a non-GAAP revenue of $825-$865 million. Likewise, its non-GAAP operating loss and net loss per share are estimated to range between $58 and $46 million and between $3.73 and $3.30, respectively.

Is iRobot Stock Best Avoided Now?

Since the beginning of the year, iRobot has been in deep trouble. The call-off of the deal to get acquired and its weak financials have disappointed investors.

iRobot’s poor financials are a major concern. Analysts expect the company’s revenue to decline 6.8% year-over-year to $829.90 million for the current year. It is also not expected to turn profitable until 2026. For the current year, Wall Street expects the company to report a loss of $3.46 per share.  

If were sum up the list of items plaguing iRobot, they include balance sheet woes such as quickly burning through cash and profitability concerns on the profit and loss statement combined with negative analyst sentiment that encompasses two downgrades recently.

With the share price suffering from high volatility and substantial declines since the start of the year, the momentum is heavily bearish and while tempting to some who make like to guess where the bottom lies, iRobot really needs to prove its mettle with improving financials over the coming years to win back shareholder confidence.

The future in a couple of years is looking brighter, not least on the back of cost cutting measures as a result of layoffs, and the payment from Amazon should help to stem the cash flow tide somewhat, but there are likely better opportunities for investors looking to allocate capital now than iRobot.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.