Investing In Drones In 2018

Investing

Investing In Drones In 2018

It’s not a sci-fi film, it’s the world we live in. Drones are taking over and we’re going to show you how to capitalise on this new tech trend today.

Published on 22 November 2017

You’ve seen them on TV blowing up terrorists, you’ve read the news reports about them hitting commercial planes, and you’ve probably seen one whizzing over your head in a park, taking unwanted videos. The drone market is big business, and investment bank Goldman Sachs expects it to amount to US$100 billion by 2020. We show you how to invest in drones in 2018.

There are three main sectors in the drone industry: military, consumer, and commercial/civil. The largest sector is the military, accounting for US$70 billion of Goldman Sachs’ estimates. The big boys in drone defence contracts are Boeing, Lockheed Martin, Aerovironment Inc., and Northrop Grumman.

The consumer sector – made up of the personal drones you see individuals flying in parks and around cities – is set to account for US$17 billion, Goldman Sachs predicts. The main players in this area include DJI from China and Parrot from France. Although Xiaomi is quickly catching up in third place and American AeroVironment is making strides. They are the largest drone manufacturers in the world. Consultancy firm Gartner states the somewhere in the range of 2 million drones were sold to consumers last year and 2.8 million are expected to land in consumer’s hands this year.

Finally the commercial/civil sector, which is set to account for US$13 billion according to Goldman Sachs. This could mean everything from the fire department to construction and agriculture. Even Amazon wants to use drones for the delivery of products to customers. Consulting firm Gartner said that in 2016 around 110,000 drones were purchased for commercial use, and they expect this figure to rise to 174,000 this year.

Geographically speaking, the largest market is expected to remain the US where – according to Goldman Sachs – US$17.5 billion will be spent on drones by 2021. That’s a considerable amount compared to the amount of sales they estimate for China (US$4.5 billion) and Russia (US$3.9 billion) – the next to largest markets.

Where’s the market jetting off to?

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According to experts, the commercial/civil sector of the market is ready to take off. However, government flight restrictions are hampering things. In the US, the Federal Aviation Administration limits users of drones to only flying them up to a height of 400 feet and keeping them within the pilots sight at all times. They cannot be flown over people or at night.

With companies like Amazon looking to start a delivery service using “hives” in cities to bring packages to your door. Other companies such as UPS have started testing drones that launch from the top of delivery vans. FedEx even has their own Institute of Technology at the University of Memphis with a drones research cluster that they added in 2016.

Closer to home in Singapore, Airbus Helicopters is working with Singapore Post to test drones next year at the National University of Singapore. There are many companies involved around the world in this ever-growing industry, however things won’t really take off in the commercial and civil sectors until regulations change.

Companies to purchase shares in

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If you are looking to invest in companies in the drones space, here are some possibilities to consider:

  1. Defence companies such as Boeing (BA US$266.99 with a year-to-date (YTD) gain of 71.50%), Lockheed Martin (LMT US$316.94 with a YTD gain of 26.81%), and Northrop Grumman (NOC US$304.31 with a YTD gain of 30.84%).
  2. Consumer and civil drone manufacturers such as AeroVironment (AVAV US$45.08 with a YTD gain of 68.02%) or Parrot (PAOTF US$10.53 with a YTD loss of 3.31%) Some of the other big players like DJI and Xiaomi are privately held, thus making investing more challenging.
  3. Companies that will use drones for delivery including Amazon (AMZ US$1,139.49 with a YTD gain of 51.96%), FedEx (FDX US$217.32 with a YTD gain of 16.71%), and UPS (UPS US$113.92 with a YTD loss of 0.63%).
  4. Technology companies creating software and technology for drone manufacturers. Texas Instruments (TXN US$99.19 with a YTD gain of 35.93%) don’t just make scientific calculators for high school students, they also make integrated circuits for drones.
  5. Camera companies such as Go Pro (GPRO US$8.61 with a YTD loss of 1.15%) are not only producing cameras for drones, but also their own drones.

The bottom line

The drone market is growing rapidly and there will many more ways to invest in this arena in the coming years. New technologies will open up new opportunities.

We still expect the military sector to push development, however, once delivery services are able to start operating regularly with drones, expect growth to rise exponentially. You may think you’ve stepped into the Fifth Element, probably minus the hairdos and clothing though.

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