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Can You Invest In Commercial Drones?

|Includes: Apple Inc. (AAPL), DIS

Drones. Certainly, a "buzz" word in the news today, have just begun taking flight both in popularity and innovative uses. Those within the industry prefer to refer to them as Unmanned Aerial Systems/Vehicles (UAS/UAV) due to the negative connotations surrounding the word "drone" such as illegal surveillance. UAVs have been around for over 100 years, but we are just now starting to explore the potential of UAVs with advancements in aircraft design, computing power, satellite tech, and advanced optics. But is there really an opportunity for everyday investors at this point? Or is it just best to wait on the sidelines as the government uses them to fire peanut butter to save black-footed ferrets from extinction.

It is important to understand why companies would be interested in using UAVs and what exactly they are. In an optimal environment UAVs safely help eliminate human error while increasing the efficiency of operations at a lower cost. The FAA regulations define a UAV as "a device that is used or intended to be used for flight in the air that has no onboard pilot". Current commercial regulations require operators to keep UAVs in their line of sight, avoid flying over people uninvolved with flight operations and limit weight to 55 lbs. Though companies and individuals can attempt to file for waivers, the current limitations have prevented UAVs from being rolled out on a wide scale. Thus, the mass delivery of packages through the air to one's backyard (trumpeted by Amazon's (NASDAQ: AMZN) Prime Air 60 minutes appearance) will not commence until regulations loosen.

Though the FAA has not been granting rule waivers in regard to mass operations in urban populations, the opposite, (areas where businesses and companies don't have to worry about multitudes of people) has been left as the fastest growing commercial application of UAVs. Agriculture, mapping, and inspections have taken the forefront. A farmer can use cameras and sensors to learn which parts of his field are growing best or areas that need more water. Or instead of paying someone to climb up a cell tower, simply flying a camera-equipped UAV can save time and money in performing an initial inspection.

Companies such as Disney (NYSE: DIS) have partnered with Intel (NASDAQ: INTC) and started exploring the entertainment opportunities UAVs offer. Disney has released a sneak-peek video of their Starbright holiday show, which has already started this holiday season and includes 300 drones that reach up to 150 feet while avoiding flight over people. Disney also applied to patent a drone airbag that deploys over the device in case of emergency, though nothing big on the surface, imagine if this technology ended up becoming commonplace in UAVs. Wishful thinking perhaps, but this early adoption of UAVs seems to have the capability to only help and not hurt Disney.

Even Apple (NASDAQ: AAPL) has recently joined the UAV foray in their attempt to improve their Maps application. In order to expedite the process of collecting map particulars, Apple has turned to UAVs who will be able to complete the process in a more efficient and timely manner than their current minivan collection. The company has already hired an employee away from Amazon Prime Air and has been adding robotic and data-collection experts to their staff. Embracing the latest technology is vital to providing customers with the best possible data as Apple fights to keep ahead of competitors such as Google Maps and Waze. Keeping users within their operating system instead of launching a competing app is vital as consumers spend substantial time using mapping systems to search for nearby destinations and provide directions.

The production and sales of UAVs targeting everyday consumers are dominated by one player, privately owned DJI. Ambarella (DJI chip supplier) CEO and President Ambarella Wang stated during Ambarella's last earnings call, "the big winner in this (UAV) market is DJI and we do expect that DJI continues to expand to other unit sales next year." DJI is the maker of the popular Phantom series and continues to release higher end drones in their attempt to target pro-consumers. The last known valuation of the company was reported at $8 billion by the WSJ after an investment in the company was made by SZ DJI Technology Co. in early 2005. In comparison, their largest competitor Parrot is valued at $285 million and only part of their revenue comes from UAVs.

Ultimately though Unmanned Systems could help the aforementioned publicly traded large business's bottom line, the catalyst is not big enough no matter one's belief in its success to currently warrant an investment on its own. If industry predictions regarding the eventual size of the market are true we will almost certainly see an influx of drone-related IPO's in the future. The only pure UAV investment opportunity on the American stock exchange is through AeroVironment (NASDAQ: AVAV) which I will dive into in my next UAV article. I hope this article has given you a general overview of where the UAV industry stands, and how some companies have started to embrace this new technology. Please feel free to comment with any questions you may have.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.