Propwash #6 - The biggest drone conglomerate you didn't know about

A holding company is not your typical company. It’s one that “owns” several other companies by having a majority stake in them. Warren Buffet’s Berkshire Hathaway is a famous example of a holding company that has made Buffet one of the richest people on earth.

The Drone industry is pretty young. It’s less than a decade ago that drones hit the peak of their hype cycle. That means there aren’t a lot of drone companies that have established themselves to be listed on a public exchange. In fact, Drone Industry Insights lists just 14 drone companies that are publicly traded. If you (like me) thought that the drone industry is too young to have a holding company that’s also public, you’d be wrong.

The company that would prove you wrong is Red Cat Holdings. It’s a holding company that’s “investing in the future of drones”. Red Cat has acquired a suite of companies in the last two years and makes for an interesting case study.

Why am I talking about Red Cat this week? Because Red Cat just announced that they are acquiring Teal Drones - a maker of military and enterprise drones. Teal’s Golden Eagle was one of the five drones to be approved by the US Department of Defense after DJI was blacklisted.

The acquisition news made Red Cat Holdings’ stock rise up by 47%. Why are investors interested in Red Cat? One of the reasons is that Red Cat Holdings now has a quite diverse portfolio of five drone businesses, four of which were acquired in the last two years alone.

As you can see, it’s a pretty diverse set from consumer hardware, consumer media content to enterprise software and hardware. The acquisition of Teal drones was for an undisclosed amount but there was a very well produced video highlighting the acquisition.

Given the buying spree that Red Cat is currently on, it wouldn’t be surprising if we hear about another acquisition before the year ends. Red Cat holdings is the only large drone conglomerate, and would attract a lot of investors looking to invest in the Drone Age. AgEagle having recently acquired two drone companies(Measure and Micasense) is a close contender, perhaps we’ll see more acquisitions and see the rise of another drone conglomerate in the industry.

Here’s an interesting thing I discovered during my research on Red Cat - there are Reddit communities (Subreddits) devoted to discussing specific stocks. Our drone industry is not spared - there’s one for Red Cat, AgEagle and Ehang.

Being Reddit communities, there’s cheers for each stock and wishing for the stock to “go to the moon” with rocket emojis 🚀 and memes. Lots of memes. Interest in these drone communities spiked during the recent event where the stock of GameStop (A video game retailer) became very volatile and shot up due to activity in r/wallstreetbets (a reddit community to discuss stocks). The story is quite interesting and complex and no-one does a better job of explaining it than Bloomberg’s Matt Levine - here.

When GameStop(GME) “went to the moon”, Redditors didn’t just stick with GME. They were on the hunt for what would be the next GME, and some of them stumbled upon the stocks of our little Industry. As you can see above, every drone stock rose just after GME in the beginning of the year.

Where does Red Cat Holdings go from here? How many more acquisitions can we see in the next year? It’s nice to see legacy businessmen invest big in drones, and I hope we see a lot more activity like this in the future.

Speaking of publicly traded drone companies, there are some companies that have a small stake in drones but with a primary business in an entirely different sector. One such company is Amazon with its Prime Air program to build a drone delivery service for its delivery operations. Let’s look at how that’s going below.

Google and Amazon are two of the largest companies in the world. Incidentally, they both have a drone delivery program in the works. Also, both programs were announced around the same time, between 2012-2013. Amazon Prime Air v/s Google Wing was the battle of the giants in the drone delivery space to watch out for.

In 2019, Amazon unveiled their drone and flaunted its redundant systems and unique design. In the conference where it was unveiled, Amazon claimed that they’d start delivering “in the coming months”. Amazon is not particularly well-known for meeting launch dates, and the Prime Air program kept up the tradition.

It’s been close to two years at this point, and we’re yet to hear any good news from Amazon about Prime Air. Instead, we’re hearing this. Business Insider reports that the Prime Air division isn’t really doing well. Ouch! Let’s dive into some details…

There seem to be several issues, a major one being Aerospace Industry veterans joining the executive team and creating a conflict with the existing company culture. The quotes below highlight it best -

-David Carbon, VP of Prime Air and a former Boeing Executive

Several employees are concerned about the newly introduced work culture that has a slower and regulated approach to doing things, as opposed to the “agile” approach that’s more common in Amazon. Some employees are concerned enough to leave, resulting in an attrition rates as high as 20%. This is much higher than other parts of the organization with 14-16% which isn’t a good sign either.

While Amazon is struggling to get more trial operations running, their rival Google Wing is busy conducting trials in several places such as Virginia, Australia, and Finland. Amazon is planning to soft-launch in the third Quarter of 2022. That’s a long way to go, especially when your competitors are having an edge doing delivery trials in several places already.

The report paints a grim picture with some employees claiming that some decisions were “burning bridges everywhere”. Another employee states “I have no idea what we’ve accomplished as an org in 2020 to bring us closer to delivering to actual customers”.

Fixing cultural issues in an organization is a slow and painful process. I really hope that the internal issues in Amazon get resolved and we see more friendly competition in the drone delivery space. I recall being very impressed by the drone they unveiled in 2019, and I look forward to them impressing me with their operations sometime in the future.

Other news from around the drone space -

Watch this beautiful montage of what’s possible with a drone light show. The sharp-eyed among you can spot the helical antenna used in the high accuracy GPS receivers to enable precise positioning.

Every week I also share something unrelated to drones that makes for an interesting read. This week, I want you to go read this beautiful and poignant letter the acclaimed scientist Richard Feynman wrote to his departed wife.

That’s it for this week! Did you find this issue worth your time? If you did, why not share it with your friends and colleagues.

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Keep flying,

Nihal