Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Drone Wars: The Companies You Need to Watch

Source: Washington Post

Once thought to be the stuff of science fiction, drones have become a sought-after resource used by companies to revolutionize the business landscape. (NASDAQ: AMZN  )  has invested heavily into drone development that could harm FedEx (NYSE: FDX  ) and UPS (NYSE: UPS  ) , and the news just broke that Google (NASDAQ: GOOG  )  has beaten out Facebook (NASDAQ: FB  ) in the bidding for a valuable drone company. Moving forward, investors would be foolish, not Foolish, to ignore this growing trend because the profits from mass-producing and using drones could be immense.

Google and Facebook can't get enough!
On April 14, CNBC revealed that Google had confirmed the rumors that it had struck a deal to buy Titan Aerospace for an undisclosed sum. This flew in the face of previous reports that Facebook was buying the solar-powered drone manufacturer in a transaction that valued the business at $60 million. However, Facebook appears to have been successful in its efforts to acquire another drone manufacturer, U.K.-based Ascenta, for $20 million.

In essence, the acquisition will allow Google to provide Internet capabilities essentially anywhere on Earth through drones that will hover in the upper atmosphere. With life expectancies of up to five years, these drones could provide access relatively cheaply, especially when placed against alternatives like physical infrastructure.

While this move may not sound terribly exciting, increasing the number of potential Google and Facebook users by making these services available could be extremely valuable. In the case of Facebook, which has more than 1.2 billion monthly active users and revenue of $7.9 billion, increasing its user count dramatically could help the company grow. The same premise applies to Google as well.

Drones coming to a home near you!
If all this drone business seems a little over your head (pun intended), let's come down to Earth a little more. Amazon, the largest e-commerce site on the planet, has been experimenting with drones that its management hopes to one day use for fast home delivery. According to Jeff Bezos, the company is already testing its fifth and sixth generation aerial drones and it is in the planning/design phase for both seventh and eighth generation ones.

In the event that Amazon can successfully develop and operate drones, the company could open a new door of opportunity that could pose a threat to package delivery businesses like FedEx and UPS. In 2013, UPS reported revenue of $55.4 billion, up 22% from the $45.3 billion the company reported five years earlier.

FDX Revenue (Annual) Chart

FDX Revenue (Annual) data by YCharts

Smaller FedEx had revenue of $44.3 billion, but the company showed greater top-line growth of nearly 25% from the $35.5 billion it reported in 2012. From a profitability perspective UPS did far better with net income of $4.4 billion in comparison with FedEx's $1.6 billion.

With total e-commerce sales (inclusive of products and services) expected to grow 20% this year from $1.25 trillion to $1.51 trillion, it's practically a foregone conclusion that the demand for product transportation will rise. Demand is so high, in fact, that both UPS and FedEx failed to post the earnings analysts expected last quarter because they had to bring on more equipment and part-time workers than they initially anticipated. Recognizing this opportunity, Amazon likely hopes to use its innovative ideas to capture a good part of this market in the years to come.

Foolish takeaway
Right now, the world is changing very quickly. With a growing population and higher demand for goods and services, businesses are doing all they can to innovate to meet customer demand. This has led some of the top technology firms to venture into drones to accomplish this. In the long-run, it's hard to tell what will become of these endeavors. However, for the Foolish investor who believes in these company's visions, now might be an attractive time to consider adding them to your portfolio.

3 stocks to own for the rest of your life
With drones becoming big business for big businesses, investors are right to ask if companies like Google, Facebook and Amazon might be the best to hold forever.  However, there are plenty of companies out there that are viable prospects in the "forever" category.  Do any of these businesses make the cut or are there better opportunities at hand for the Foolish investor?

As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2918013, ~/Articles/ArticleHandler.aspx, 9/2/2015 4:50:15 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Daniel Jones

Dan is a Select Freelance writer for The Motley Fool. He focuses primarily on the Consumer Goods sector but also likes to dive in on interesting topics involving energy, industrials, and macroeconomics!

Today's Market

updated 7 hours ago Sponsored by:
DOW 16,058.35 -469.68 -2.84%
S&P 500 1,913.85 -58.33 -2.96%
NASD 4,636.11 -140.40 -2.94%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/1/2015 3:59 PM
AMZN $496.54 Down -16.35 -3.19% CAPS Rating: ***
FB $87.23 Down -2.20 -2.46%
Facebook CAPS Rating: ***
FDX $148.03 Down -2.58 -1.71%
FedEx CAPS Rating: ****
GOOG $597.79 Down -20.46 -3.31%
Google (C shares) CAPS Rating: ****
UPS $95.20 Down -2.45 -2.51%
United Parcel Serv… CAPS Rating: ****