Drone technology/DJI: shooting star
Chinese group dominates hobby market, but there are fears it is starting to saturate
In 2014, the inhabitants of Deer Trail, Colorado (population 680), voted against hunting licences permitting them to blast drones from the sky. Freedom-loving gun owners were perhaps the last serious holdouts against the product. The consumer market for drones has taken off, metaphorically as well as literally. DJI, the world’s leading drone manufacturer, is aiming for a $15bn pre-float valuation, according to a Reuters report.
The US army prohibits its personnel from using the Chinese group’s drones. No matter. DJI dominates the hobby market. Its low-cost models have driven out swaths of competition. Remaining makers include Parrot of France.
Analysts at International Data Corporation expect drone sales of $9bn this year. Assume retail makes up half of that and DJI has a market share of roughly 70 per cent. Implied 2018 revenues would then be $3.2bn, 12 per cent more than the figure revealed by Chinese media for last year.
At less than five times revenues, the latest funding round does not imply a crazy multiple. Investors would surely expect a boost if and when the group goes public. Flagship tech company Tencent trades at 16 times revenues.
One downdraft against a high valuation is the fear the retail market is starting to saturate. Drones could be boys’ toys that end up gathering dust on a garage shelf when their novelty evaporates. Manufacturers are thus betting on commercial applications. Models equipped with computer vision and specialised algorithms for agriculture, infrastructure and other sectors could boost demand and command healthy margins.
Investing in the group requires faith in the continued dominance of DJI as it builds up such applications. The group should be helped by Chinese government enthusiasm for products that collect and analyse data in the real economy. Given US worries over foreign cyber espionage, the idea of drone hunting might not be so far-fetched after all.