Shares of iRobot Corporation (Nasdaq: IRBT), maker of the Roomba autonomous vacuum cleaner, are crashing today after the company announced that it will seek Chapter 11 bankruptcy protection.
As of this writing, IRBT shares are down more than 78%—and the news is only expected to get worse for common shareholders. Consumers, on the other hand, may be wondering if their Roombas will stop working. Here’s what you need to know.
What’s happened?
On Sunday, iRobot Corporation said it has filed for bankruptcy. The Massachusetts-based company is seeking Chapter 11 protection in the District of Delaware.
As part of the process, iRobot has entered into a Restructuring Support Agreement (RSA) with the Chinese company that manufactures its Roomba vacuum cleaners and other products, Picea Robotics.
iRobot was founded in 1990 and was one of the most prominent American companies to popularize household robotics among consumers. Its Roomba vacuum cleaner took households by storm when the product was first released in 2002.
But in the decades since, iRobot has faced heavy competition from other robotic vacuum companies, many of which have released cheaper, superior products in recent years.
Still, iRobot enjoyed strong brand recognition and had a significant foothold in marketshare among robotic vacuums in both America and Japan. Starting in 2022, Amazon attempted to acquire the company, but that deal was ultimately abandoned due to regulatory concerns.
Since then, iRobot has faced mounting debt, increased competition, higher operational costs, and the negative financial impact of President Trump’s tariffs, notes Reuters.
By this month, those burdens became too much, and the company decided to file for bankruptcy.
What happens to iRobot now?
If the Delaware court approves the bankruptcy plans, iRobot’s ownership will transfer to Picea Robotics, the company’s primary manufacturer, which is also now its largest debt owner.
In a press release, iRobot says it plans to continue operating throughout the bankruptcy proceedings, and once the proceedings are completed, iRobot is expected to continue operating under its new owner’s leadership.
However, once the bankruptcy proceedings are complete, iRobot will be owned as a private company by Picea, which has significant implications for iRobot’s stock.
How does the bankruptcy impact iRobot’s stock?
iRobot’s stock will be significantly impacted by the bankruptcy. Upon completion of Chapter 11, iRobot will cease to trade as a public company. That means its shares will be delisted from the Nasdaq and will no longer be available for public trading.
Given this news, it’s little surprise that IRBT shares have fallen off a cliff since the bankruptcy plans were announced.
As of the time of this writing, iRBT shares are trading down more than 77% in premarket trading. Right now, IRBT shares are at 97 cents. On Friday, they closed at $4.32 per share.
But as if today’s cliff-edge price drop wasn’t bad enough for iRobot investors, the company issued a dire warning to shareholders alongside its bankruptcy announcement.
If the court approves the bankruptcy plans, iRobot expects that holders of iRobot common stock “will experience a total loss and not receive recovery on their investment.”
In other words, if the bankruptcy goes ahead, retail investors can expect their IRBT shares to become worthless. In February 2021, IRBT’s shares traded as high as $137 per share. But since then, they have steadily declined, culminating in today’s sub-$1 price.
Will Roombas stop working?
Robotic vacuum cleaners are Internet of Things devices that generally require cloud infrastructure and an online platform to continue operating.
Given that iRobot has announced it is filing for bankruptcy, many Roomba owners are understandably worried that their expensive vacuum cleaners might suddenly become bricked and stop working.
But for now, those fears seem to be unfounded—at least according to iRobot. In a statement announcing its bankruptcy plans, iRobot said that “no anticipated disruption to its app functionality, customer programs, global partners, supply chain relationships, or ongoing product support.”