In May 2024, iRobot(NASDAQ: IRBT) announced that it had a new CEO. But this isn't any old shift in the top brass, because it's yet another plot twist in a much bigger story.
The next chapter for iRobot, now under the leadership of CEO Gary Cohen, is going to be vitally important to the company's survival. Here's what you need to know and why Cohen has so much work ahead of him.
Amazon's decision forces change
Amazon(NASDAQ: AMZN)announced its intention to buy iRobot in August 2022. As the deal progressed, iRobot made several adjustments in preparation for the takeover, including a series of large layoffs before the end of 2022. Its devices group was particularly hard hit by this trimming including a loss of the devices group's leader. But in January 2024, Amazon effectively got cold feet before it could finalize its acquisition, calling off a merger largely because it faced a tough regulatory approval process.
But there's more to why iRobot was selling itself. The pairing here seemed logical, with retail and technology giant Amazon having the ability to spend money on research and development on top of owning a massive distribution platform. It would likely have been able to take iRobot's products to the next level in multiple different ways.
From iRobot's perspective, the deal was a life-saving move. The company was bleeding red ink and its share price had cratered.
The importance of the acquisition to iRobot became very clear after the deal was called off. Why? Because the company immediately announced that it was enacting a turnaround plan. The list of actions included cost-cutting, even more staff reductions, and the sale of some assets.
The CEO at the time stepped down, launching the search for someone new to take on the top job.
The new guy has to learn fast
It took roughly three months for the board of directors to decide on Gary Cohen, who took over on May 7. Cohen comes with interesting experience, including working for consumer products companies and leading turnarounds. In the news release announcing his appointment as CEO, Cohen said all of the right things. That's no surprise.
The problem is, nice words aren't going to change the situation iRobot is facing today. It is a struggling company that needs to be rescued, which is why Cohen was brought on board. His first task is going to be getting to know the business, but he's not going to have a lot of time to do that given the situation iRobot is in. Wall Street is also going to be eagerly awaiting a plan, one that builds on the one announced when the Amazon deal blew up.
Cohen's appointment was made at the same time that iRobot reported first-quarter earnings results. So, effectively, the new CEO's first public appearance is going to be on the Q2 earnings call. Even if he doesn't have a plan yet, it is highly likely that analysts are going to be asking for hints as to what his eventual strategy will include. Until Cohen outlines his road map in meaningful detail, uncertainty will be high here.
IRBT Cash and Equivalents (Quarterly) data by YCharts
But the plan is only the starting point of his turnaround effort. After all, it is its execution that will really determine iRobot's future. The earnings problems at iRobot came on very quickly, which suggests that the new CEO will have to work very quickly to get the company back on track. That's highlighted by the fact that its cash balance has fallen over 75% from its peak in 2021. That's a trend that simply can't go on for very long, and it's Cohen's job to stop the cash burn.
Only for the most aggressive investors
Turnarounds are not for the faint of heart, and iRobot is a stock that only aggressive investors should be considering today. It is never good when a Hail Mary pass falls short, which is basically what happened when the Amazon-iRobot merger deal was called off. But it is even worse when such an event leads to a major corporate restructuring effort.
It is possible that an outsider's perspective will help to reinvigorate the company, but until investors know more about the new CEO's plans and see how they're executed, it is hard for me to assert that iRobot stock is worth the risk.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and iRobot. The Motley Fool has a disclosure policy.
