Will 2018 Be the Year of the Personal Drone?

Markets Motley Fool

Drones have gotten a lot of attention over the past few years as they've created new markets for everyone from weekend hobbyists to realtors to professional drone racers. Personal unmanned aerial vehicles (UAVs) -- purchased mainly by consumers for shooting pictures and videos -- make up 94% of the market. Unit sales spiked 60% in 2016, according to research firm Gartner, which forecasts a further pop of 39% this year. 

Continue Reading Below

After such a huge increase in personal drone sales, some investors may  wonder whether this market has plateaued. Fortunately, there appears to be plenty of room for more growth next year, and upcoming innovations mean that 2018 could be a big year for the devices. But it's still unclear whether this growth will help chipmaker Ambarella (NASDAQ: AMBA).

Why more drone sales may be on the way next year 2018

As we near the end of 2017, it's becoming clear that personal drone sales are on an upward trend. Here's what they looked like in 2016, compared to the forecasts for this year.

Metric

2016

2017

Personal drone sales

$1.7 billion

$2.3 billion

Revenue growth

35.3%

34.3%

Total units sold

2.1 million

2.99 million

There's no guarantee, of course, that drones sales will spike again next year, but it certainly seems likely this growth pattern will continue. For example, Gartner is expecting sales of personal and commercial drones to reach $11.2 billion by 2020, up from just $6 billion this year. 

Continue Reading Below

"Personal drones will continue to increase in popularity as an affordable extension of consumers' smartphones for taking photographs and selfies and for other entertainment options," the research firm said in a press release. 

Gartner also pointed out that the increase in government regulations around personal drones has yet to hurt the market. In fact, the Federal Aviation Administration (FAA) estimates that the number in use will more than triple between 2016 and 2021. The high end of the FAA estimates puts the total number of personal drones in the U.S. at 3.18 million by next year. 

New tech could boost drone sales

Drone companies have already showcased some of the new tech set to go on sale in 2018 -- upgrades that should help keep sales humming along. For example, Ambarella's new new H22 processor chip, which will be found in drones next year, allows them to shoot 4K video, and offers a built-in electronic image stabilization feature.

This is significant for buyers because it means manufacturers will be able to remove the physical gimbals that now provide image stabilization, making these drones lighter and faster, and extending their battery life.

There could be pent-up demand for such devices. DJI, the world's top drone maker with 70% of the market, still sells many drones with physical gimbals. Ambarella has been a major chip supplier for the company in the past; if its H22 processors start finding their way into new DJI drones, the improvements could push demand even higher. 

Ambarella also showed off its new H3 chip earlier this year. It's one of the first processors that let's drones shoot 8K video, and it too could spark an uptick in sales as hobbyists seek out new devices with better video quality.

Ambarella sold about 2 million chips for the drone market last year,and the company has said that about 10% of its revenue comes from drone chip sales. But some of its largest customers have started to drift away lately. These innovations will be even more important for the company as it tries to woo those customers back.

Will 2018 be the biggest year for personal drones?

Though there's no way to know for sure what sales will look like next year, the estimates from Gartner and the FAA are quite bullish on drone market growth, and technological upgrades will give consumers fresh reasons to consider buying.

Ambarella could certainly reap some benefits from that, but investors should keep a close eye out to see which devices its chips win places in. DJI has already started using some chips from its competitors; if it loses its place in more drones, Amabarella shareholders should start worrying.

10 stocks we like better than Ambarella
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Ambarella wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of October 9, 2017

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ambarella and Gartner. The Motley Fool has a disclosure policy.