Roomba Maker iRobot Struggles with Potential EU Rejection of Amazon Acquisition and Falling Sales, Analyst Says

iRobot Corp IRBT shares fell to 52-week lows on Friday on reports that regulators in Europe will recommend the EU reject the planned acquisition of IRBT by Amazon.Com Inc AMZN due to concerns it would restrict competition in the robotic vacuum cleaner category. 

Investors remained focused on iRobot’s plan B, if any, as per Needham analyst James Ricchuiti. The analyst had a Hold rating on iRobot stock.

Since the companies announced the deal in August 2022, IRBT’s business has deteriorated for various reasons, including the post-pandemic hangover that followed a burst of home goods and consumer electronic spending, increased competition, and supply chain woes.

Through the first nine months of 2023, sales dropped 29% to $583 million, while IRBT’s adjusted operating loss totaled $(153) million. 

The analyst noted that if the deal breaks due to regulatory concerns issues, IRBT will likely receive $94 million, which will soften the blow and temporarily shore up the company’s balance sheet. 

However, it will not alter the difficult position in which IRBT finds itself; even after several rounds of expense reduction, the company’s cost structure still needs to reflect the structural long-term changes in the business.

Although the company’s fourth quarter results will likely show sequential improvement, the analyst noted it was nevertheless a tough holiday season for Roomba sales. 

His most recent estimate for the fourth quarter of fiscal 2023 assumes sales of $225 million and an adjusted loss of $(67.5) million, bringing the full-year 2023 adjusted loss to $(230.8) million. 

Even if the top line is more robust, Ricchuiti does not expect a meaningful upside on the bottom line. 

He does not see a path to break even in 2024 without significant reductions in the company’s operating expenses and an improvement in demand. 

GAAP R&D and Sales and Marketing amounted to 20% and 24% of nine-month sales, respectively, with high levels of R&D in particular well above levels one would typically associate with a struggling consumer products company.

Price Action: IRBT shares are trading lower by 0.12% at $17.24 on the last check Monday.

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