GoPro Inc – What’s The Market Potential For Drones?

Updated on

Last week, reports surfaced that GoPro Inc (NASDAQ:GPRO) was developing consumer drones that will be launched in 2015. Drones could help the diversify from the action camera market, where it faces increasing competition from HTC, Polaroid and Sony Corp (ADR) (NYSE:SNE). The San Mateo-based company is expected to sell consumer drones in the price range between $500 and $1,000.

On Monday, Oppenheimer analyst Andrew Uerkwitz said in a research note that he doesn’t expect drones to have any “substantial financial impact” on GoPro. Uerkwitz reiterated his Underperform rating on the stock with $45 price target. Oppenheimer believes that drones could represent revenue gaining opportunities in coming years.

GoPro has little expertise in the drone market

Consumer drones could benefit GoPro as it already makes light-weight cameras for drones. But the market is fiercely competitive and very specific, says Uerkwitz. Further, he is skeptical due to the company’s lack of expertise in the drone market. Consumer drone started gaining attention when French company Parrot unveiled its AR Drone about four years ago. Parrot’s sales jumped 38% in the latest quarter.

Success in the drone market won’t be as easy as it was in the action camera segment for GoPro. According to research firm Teal Group, worldwide spending on drones will almost double from $6.4 billion to $11.5 billion in the next 10 years. Currently, military drones make up 89% of the drone market. Consumer drones contribute a meager 11%.

GoPro could face regulatory hurdles

By 2024, the share of civil drones is expected to increase to 14%, versus 86% for military. That means the consumer drone market will be worth about $1.61 billion in the next 10 years. If GoPro can convince its camera users to purchase drone, there could be a significant opportunity for the company. But its ambitions could be marred by the Federal Aviation Administration (FAA) restrictions.

FAA restricts consumer drones from flying above 400 feet in the air. The Administration is working on the Modernization and Reform Act to more effectively regulate drones, which has the deadline of September 2015. The FAA has proposed that drone pilots should obtain private pilot licenses. What if it follows through the proposal? Further, every country has its own regulations on drones.

GoPro shares inched up 1.36% to $74.50 at 11:53 AM EST on Tuesday.

Signup to ValueWalk!

Get the latest posts on what's happening in the hedge fund and investing world sent straight to your inbox! 
This is information you won't get anywhere else!