How to Profit from the Rapidly Growing Commercial Drone Market
Valued at just $5.8 billion in 2018, the global commercial drone market is forecasted to expand at a CAGR of 56% over the next six years, reaching a staggering $85 billion by 2025, according to analysts at Grand View Research.
Like the internet and GPS before them, drones are evolving beyond their military origin to become powerful business tools. They’ve already made the leap to the consumer market, and now they're being put to work in commercial and civil government applications from firefighting to farming, creating a market opportunity that's too large to ignore.
The development of rules and systems to govern drone use have been outpaced by the rapid growth of the industry, creating uncertainty that weighs on innovation and commercial adoption, but anticipated regulatory clarity is expected to unlock demand.
NASA is leading a multibillion-dollar effort to develop a US airspace management system capable of safely coordinating manned and unmanned flight, while the Federal Aviation Administration (FAA) is expected to further ease restrictions that are keeping commercial drones from reaching their full potential.
Flight Data Needed to Ensure Safe Operations
In December 2018, Gatwick, the second busiest airport in the UK, was shut down for more than 24 hours after drones were repeatedly spotted flying nearby, disrupting an estimated 1,000 flights.
“This kind of incident is unprecedented anywhere in the world, the disruption of an airport in this way,” stated UK transport secretary, Chris Grayling. “We’re going to have to learn very quickly from what’s happened.”
Gatwick's chief operating officer, Chris Woodroofe, commented, “What this incident has demonstrated is that a drone operator with malicious intent can cause serious disruption to airport operations. And it's clear that disruption could be carried over into other industries and other environments.”
This mounting concern has sent regulators and insurers scrambling to catch up with the rapidly expanding drone industry.
To ensure safe operations and build insurance policies, a critical need for the burgeoning commercial market, reliable flight data and insight into how drones are flown is required.
One of the leading companies tackling this issue is Red Cat (OTCQB: RCAT), which launched the beta version of its black-box drone solution in 2018.
Blockchain-Based Solution Ensures Data Reliability
Recognizing the need for reliable flight data, RCAT founder and CEO Jeff Thompson launched the company in 2016 to begin developing a robust solution to meet the growing unmet demand.
RCAT’s platform uses blockchain technology to provide accurate and immutable data of drone operations.
“People want to be able to have some accountability and trackability to be able to start utilizing our information, whether it’s regulators or insurance companies, guys that have to write checks if you do a lot of damage,” commented Thompson in an interview with TechCrunch.
RCAT’s solution suite includes several integrated systems that enable industry regulators to track and review drone flight data, insurance companies to insure drones with reliable third-party data, and pilots to ensure compliance with regulators. The Company’s black box flight recorder is the first distributed system with secure and encrypted third-party data that regulators and insurance companies can trust.
“The next phase of the aerospace industry will include commercial aircraft, helicopters and many different kinds of drones in all shapes and sizes,” said Thompson. “For drones to have equitable access to airspace, the industry will require reliable and immutable data to ensure accountability and trackability. We developed Red Cat's black box analytics and storage to enable compliance for the drone industry and ensure safer skies for everyone.”
Red Cat CEO Discusses Acquisition of Fat Shark
Second Beta Test Program Launched in 2019
RCAT launched its first beta test in the fall of 2018 with approximately 200 drone operators.
A second beta test program kicked off in March 2019 to obtain additional feedback from the drone community.
RCAT continues to hone its technology platform based on ongoing feedback from the community, and its current product and service offerings include:
- Blockchain Black Box: Drone analytics and storage allow flight replay with customizable reports that can determine fault or performance issues. Features include encrypted flight logs and AI-powered drone self-diagnosis.
- Blockchain-Based Distributed Storage: RCAT synchronizes separate silos of data in one easy product. The stored data (GPS maps and logs; video and photos; telemetry logs; inspections and assessments; and accelerometer, GYRO and PID) is all secured and encrypted allowing compliant operations. The open source architecture integrates into any application.
- RISC V Flight Controller: Flight controller with open source RISC V processor. This System-on-a-Chip (SOC) provides flight controllers with 10x the performance of existing flight controllers.
- Thrust Engine with AI: RCAT’s flight log track is powered by AI to automatically track drone and pilot events including lift off, flips, rolls, power loops, crashes, landings, etc.
Acquisition of Rotor Riot Expected to Drive Near-Term Revenue Growth
At the start of 2020, RCAT announced an agreement to acquire Rotor Riot, the world’s premier source for first-person view (FPV) freestyle drone content and products for the hobby and sport markets.
Rotor Riot grew its revenue approximately 44% year-over-year from 2018 to 2019 to approximately $2.6 million. RCAT’s acquisition of the company is expected provide the resources and combined expertise to drive further growth for both companies, and importantly for current investors, drive near-term revenue growth and earnings as RCAT continues to build and accelerate its drone black box and SaaS business.
A key drive of Rotor Riot’s growth last year was its partnership with DJI, the market leader in easy-to-fly drones and aerial photography systems.
Management expects revenue from Rotor Riot could top $5 million in 2020.
Stock Positioned for Significant Upside
For investors interested in RCAT, there are approximately 17 million shares outstanding and only 2.5 million shares in the float, with the vast bulk of the shares being held by insiders and other associates close to the company.
As cash flow from Rotor Riot strengthens RCAT’s financial position, it is expected the company will seek to list on NASDAQ, which will help it reach a much wider audience of investors.
Trading volume has increased in recent weeks since the announcement of the Rotor Riot acquisition, yet remains relatively light, creating an opportunity for investors looking to begin building a position in the company before activity and price begin to rise.