Emerging industries are highly sensitive to market events. Technological breakthroughs, government regulations, and global phenomena all play roles in the success—or failure—of an entire industry. The future profitability of the industry, market demand, and even public perception of the technology all feel the effects of news headlines, and the shareholders feel these effects in share prices. 

The Drone Industry grows and shrinks with the daily news. Many of these young companies are still making their march toward profitability, and a single news article can swing their market capitalization by an entire order of magnitude! Despite each company’s fundamentals remaining relatively intact from day to day, the volatility demonstrates just how sensitive a young market can be to the news. Any perceived changes to future profitability get priced in within minutes!

In this article, we will look at those newsworthy events over the past 2 decades that significantly impacted the U.S. Drone Industry—both the Supply and Operations sides. I will walk through some developments that I feel have been, and will continue to be, impactful on the future of the Drone Industry. We will then take a closer look at the DRONES Index and follow its ups-and-downs over the last 5 years with an eye toward the news headlines.

Drone Timeline
Drone Timeline

There are a few key points I’d like to extract from this timeline.

  • Military Spending. Most advanced technology in history was militarized before it was commercialized, and unmanned aircraft are certainly no exception. Though unmanned systems have been in military use for several centuries (originally as unmanned hot air balloons), it was Operations Enduring Freedom and Iraqi Freedom that brought them to the forefront as a critical warfighting asset. The Department of Defense demonstrated its commitment to the technology with an unprecedented $24B 5-year UAS budget starting in 2014, and the spending spree continues. If it is any indication, UAS are the fifth most populous combat aircraft in the U.S. Air Force (MQ-9), and third most populous in the U.S. Army (RQ-7). Each service fields thousands of small UAS throughout its warfighting echelons. The Unmanned Systems proportion of the Defense budget continues to grow.
  • Drone Delivery. The “Big 3” names in package delivery—Amazon, UPS, and FedEx—all announced intentions to incorporate drones as a major portion of their business in 2014. Amazon demonstrated this overseas two years later, and UPS and FedEx each conducted their maiden domestic commercial drone delivery flight in 2019. At present, the FAA has stated that a Part 135 Air Carrier certification is the authorized path for drone delivery, which is a significant barrier to entry for smaller companies. I am confident that this, too, will evolve over time, as has been demonstrated by…..
  • FAA Policy Changes. The two major events on this chart are the creation of Part 107 policy (2016) and Remote Identification policy (2021). Prior to Part 107, the only FAA-approved commercial drone pilots were essentially manned aircraft pilots (Section 333). While drone hobbyists need not be professional aviators, a commercial drone pilot required expensive training to be on the right side of the law, strictly speaking. Part 107 lowered the bar, making commercial drone operations more accessible to a wider audience who did not have a manned aviation background. The Remote Identification rule, while not yet in full effect, will slowly reduce or eliminate drone operating restrictions to achieve their full potential: flights beyond visual line of sight, night operations, flights over people are the top 3 that I believe will open the skies to companies in a meaningful way. Drone size and type certification policy changes are two more items that I will be on the lookout for.
  • Foreign Drone Restrictions. As I wrote in a previous article, there is a growing bias toward U.S.-made drones across the government, which I believe will eventually trickle down to the private sector as well. U.S. drone manufacturers stand to benefit from this tilting of the playing field, so I would expect to see higher revenue for drone Suppliers. It will take some time for domestic drone production to ramp up to meet demand, which will probably lead to higher costs for drone Operators for several years. Eventually, U.S. drones should reach the same affordability as their foreign counterparts, so this industry-building period will be a minor blip on the radar.

With some history behind us, let’s examine how these milestones have been reflected in Drone Industry investors’ portfolios. First, let’s start by normalizing the growth of the Drone Industry with the greater equities market.

Drone Market Index Comparison
Drone Market Index Comparison

To make this chart, I sampled the three major market indices at the beginning of each quarter, and applied a multiplier to match each trendline to the DRONES Index at the beginning of the time period. What results is a snapshot comparison of relative growth and decline throughout this 5-year period. Only the NASDAQ Composite Index comes close to the DRONES Index over this period. Recall that the DRONES Index includes companies traded on both the NASDAQ and NYSE, including several S&P 500 companies.

I see the same ups-and-downs in the DRONES Index as I see in the other major indices, which comes as no surprise—the market’s laws of nature apply equally to all companies. The DRONES Index followed those trends very closely, but sustained higher growth than the other 3 indices being considered.

Next, let’s focus on the DRONES Index (sampled monthly) and overlay some newsworthy events. I generated this graph in about 15 seconds with one of my automated investing research tools.

DRONES Index With Major Events
DRONES Index With Major Events

In this graphic, I am seeing positive news for the industry resulting in abnormally high sustained growth. The temporary spikes and dips follow the same trends as the other three indices, and do not reflect the drone industry’s potential.

It is not surprising that an index of 33 companies across multiple market sectors did not significantly jump at any single event. In fact, positive news for some companies in the index can be negative news for others, thus dampening the volatility a bit.

In future articles, I will take a closer look at specific market niches and individual companies. I plan to include an overlay of noteworthy events that I believe impacted volatility, to help give you some context to assess future events as an investor.

Remember to invest wisely, and consult a financial advisor prior to making any monetary decisions.

DISCLAIMER: I am not a financial advisor, and I own shares in some stocks discussed on this site.



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