Drone Investing Could be the Next Big Thing

If you think having a drone land on your front step with a piping hot pepperoni pizza is a great idea, then maybe, just maybe, investing in drone technology is for you.

That’s because drones, or as they more formally known, unmanned aerial vehicles, are big business these days.

According to BI Intelligence, drone sales will grow from $8 billion in 2016 to $12 billion by 2021. The largest growth rates will be seen in a few sectors, including infrastructure, agriculture, transport and security.

Overall, total consumer drone shipments will crest the 29 million mark by 2021, while so-called “enterprise” (or commercial) drones will tally 805,000 in the same time period. Additionally, the U.S. government, via the Department of Defense, has budgeted for 50 new drones for direct military use, in its 2016 budget, BI reported.

Currently, there are few viable options for investing directly in drone technology, although that scenario is changing fast. Most current investment opportunities exist via venture capital firms, and from a handful of new, angel investor funds.

But savvy investors can crack the code and get in early on drones in other ways, if they bring some creativity to the table.

"Right now, the best way to invest in drones are through public done companies that have (or will have) government contracts,” said Evan Tarver, investments analyst at FitSmallBusiness.com in New York City.

Many Business Uses

Currently, the major use of drones comes from the government as well as private sector businesses, Tarver explained.

“For example, many commercial real estate owners employ drone operators to take glamour shots of their properties,” he said. “Other construction companies will use drones to map sites that they're working on, including large piping underground that used to be done by manpower.

“Still, the consumer use of drones still hasn't reached a point where it's a viable investment,” Tarver added.

Drone industry experts also advise investors to look first at three key industry sectors.

“First, there is the commercial drone industry which is dominated by DJI (a Chinese company) and other small drones that can be used for entertainment, photography or small commercial projects,” said Nicholas Smith, CEO and owner of GEO Owl, a company that analyzes intelligence from U.S. military and U.S. government drones.

“These drones typically have a limited range and flight time but are useful for various projects,” he added.

The commercial drone industry has seen “tremendous growth” over the last few years as companies are finding new ways to implement the technology, Smith noted.

“With more social media platforms allowing live feed or video integration, drones will be very useful for individual streaming and brand building,” he said.

Secondly, the military drone industry looks favorable, too.

That sector is dominated by major defense contractors, including Northrup Grumman, Boeing, L3 Technologies, General Atomics and Lockheed Martin, Smith said.

“These companies build long-range drones that are capable of carrying intelligence sensor and ammunition payloads, and most are publicly traded,” he said.

'A Lot of Manpower'

Then there’s the drone services sector, which includes the launch, recovery and maintenance of the asset itself and the exploitation of the intelligence data being relayed by the sensors, Smith said.

“The Full Motion Video, Signals Intelligence (SIGINT), and other data relayed from these sensors require a lot of manpower to properly process, exploit and disseminate all of the information,” he added.

If you want to invest in drones, invest in the companies that are involved in those three key sectors, Smith advised.

“Most of the U.S. military drone manufacturers are publicly traded,” he said. “The commercial drone industry is dominated by DJI, … but other companies such as GoPro (GPRO) are manufacturing drones as well.”

There’s one other under-the-radar drone investment opportunity – drone pilots.

Now that the FAA has made it possible to operate drones for commercial use, a huge group of entrepreneurs are starting to launch all kinds of drone-related businesses for hire, said Slavik Boyechko, founder of Gear Dads, a videography company that uses drones.

“But before they can fly professionally, they need expert training,” he said. “Investing in training programs for commercial drone pilots is a good bet, not only for flight safety, but also for helping the masses navigate the complicated certification process.”

Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms, including CBS News, The Street.com, and Bloomberg. Brian may be contacted at [email protected].

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