While shares of iRobot (NASDAQ: IRBT)
The inflection point
Investors could have easily overlooked management's reference to expectations for vacuum sales potentially hitting this key inflection point; it was discussed in iRobot's quarterly earnings call -- not its fourth-quarter earnings release.
Here's how iRobot CEO Colin Angle explained the opportunity:
Following the exceptional performance we delivered in the fourth quarter, we are more confident than ever that the robotic vacuum cleaning segment is at an inflection point. That is, it is in the explosion stage on the maturity curve. It didn't happen overnight; in fact, it has taken us more than a decade to develop the right mix of appropriate messaging to reach the addressable market and deliver quality products that delight our customers.
Later in the call, Angle further explained that while only eight million households in the U.S., or less than 10%, have robotic vacuum cleaners, word-of-mouth marketing is becoming material enough for the company to make significant inroads in 2017 on "the next segment of immediately addressable 25 million households."
No wonder management guided for its consumer revenue to accelerate from 17% year-over-year growth in 2016 to 17% to 19% growth in 2017.
Time to buy?
Of course, even if management is spot-on with a prediction for an inflection point in robotic vacuum adoption, there's no guarantee iRobot will be able to maintain its market leadership amid explosive growth.
Fortunately, though, management does seem to acknowledge that its leadership isn't certain.
"It is critical that we not cede our hard-won global market leadership to would be competitors who recognize this enormous opportunity," Angle said.
To capitalize on the opportunity while also keeping competitors at bay, Angle says iRobot will continue investing in product features and functionality, its patents to protect its technology, and its marketing.
Also, despite increasing competition from other robotics companies and traditional household vacuum cleaner companies, iRobot's recent decision to focus solely on consumer electronics robotics, as well as management's plans to invest aggressively in product development and marketing, should help the company be a primary beneficiary of any "explosion stage" in robotic vacuum adoption.
Finally, even if an inflection point proves to be more conservative than management anticipates, investors can take comfort in the fact that only one in 10 U.S. households currently has a robotic vacuum. So, there's still lots of room for iRobot to grow in the coming years.
"Explosion stage" or not, it's still early enough for investors to get in on this small-cap stock.
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