Special thanks to Austin Bohlig for his work on this note. 

We believe the domestic robot market, which includes robotic vacuums, mops, and lawnmowers, is one of the most promising sub-categories within the robotics space. Following iRobot’s Q2 results, we are incrementally more bullish on domestic robots. iRobot recently released Q2 results, which exceeded expectations across the board, and the company raised full-year guidance, which now implies ~25% y/y growth in the consumer robot business (excluding the acquisition of a distributor, Robopolis). Following these positive results, as well as recent conversations we’ve had with other leading robotic vacuum cleaning companies, we see four key takeaways:

Takeaway #1 – Making A Robot is Hard!

Some argue that increased competition from legacy vacuum cleaner makers will threaten the opportunity for robotics startups, but iRobot has continued to flourish and we believe it comes down to the fact that making a robot is not easy. In other words, it’s easier for a robotics company to build a vacuum than it is for a vacuum company to build a robot.

It’s easier for a robotics company to build a vacuum than it is for a vacuum company to build a robot.

Although a Roomba vacuum cleaner may look simplistic on the outside, the advanced software programming, computer vision systems and engineering acumen that goes into developing a high-performing robot is difficult to replicate. We believe iRobot’s consistent outperformance validates our thesis. While iRobot has stated they are seeing increased competition in the low-end vacuum market, we believe iRobot remains a clear market leader in the high-end category. We do believe there are other companies bringing impressive domestic robots to market, including Neat0 Robotics, Ecovacs and Samsung, but similar to iRobot, these are companies with a competency in robotics, which provides them a distinct advantage over legacy vacuum players. And this applies to robots with other domestic functions, including lawn mowing, snow removal, etc. Again, it’s easier for a robotics company to design for a specific function than it is for a legacy player to build a robot, which is why we see so much opportunity in the robotics space.

Takeaway #2 – The Domestic Robot Market May Be Larger Than We Thought.

In early June, we published a 6-part series on the future of robotics: Intro, Industrial, Commercial, Domestic, Military, Social and Entertainment, Software. In our domestic robot piece, we forecast the total domestic robot market to grow 17.1% in 2017 to $1.7B, including 16.5% y/y growth in robotic vacuum cleaners. However, iRobot’s total robot revenues increased 24.2% y/y and the company raised full year 2017 guidance, which now implies 25.0% y/y growth in their robot business.  Given iRobot’s positive outlook and other conversations we’ve had with leaders in the space, we believe our estimates are likely conservative.

Takeaway #3 – It’s Not Just About Vacuum Cleaners.

iRobot’s revenues from wet floor mops increased 80.0% y/y, which was driven by strong demand both domestically and internationally. Robotic vacuums are no longer the only form of automation entering the home. We believe consumers are becoming more comfortable with other kinds of domestic robots such as mops and lawnmowers. And domestic robots is just the beginning of the much larger connected home theme. Given these robots are now equipped with advanced computer vision technology, they can map an entire household. The CEO of iRobot recently highlighted how they are considering selling this data to larger companies like Amazon, Facebook and Google to create new consumer applications.

Takeaway #4 – Domestic Robots Is A Global Trend.

While iRobot saw the strongest growth for robots domestically (revs up 46% y/y), the company is also upbeat about the growth they are seeing internationally. For example, the company expects to see high-teens growth in EMEA and 20%+ growth in Japan in 2017. Due to market variances by geography, we believe different domestic robot categories will flourish in different parts of the world. For example, Asian households have more hardwood floors and less carpet, so demand for wet floor robots will outperform in this region. In addition, although iRobot doesn’t have a robotic lawnmower commercially available yet, this market is seeing strong adoption in European countries because of the relatively smaller lawn sizes. Regardless, we believe that, in aggregate, consumers are increasingly comfortable with robots in the home.

Bottom Line

iRobot’s results are encouraging for the entire robotics community, validating consumer demand for robotics and automation in the home. We believe the domestic robot market will be one of the strongest robotics sub-categories over the next 10 years. Following iRobot’s revised expectations for 2017, we believe that our near-term forecasts are likely conservative and that the best is yet to come.