Action camera maker GoPro (GPRO 0.90%) will start selling consumer drones late next year, according to a recent report from The Wall Street Journal. Drones would help GoPro tap into the growing aerial photography market and diversify away from the action camera market, which is being saturated with hungry rivals like Sony (SONY -2.09%), Kodak, HTC, and Polaroid.

Will GoPro's drones help its stock take off, or will they cause its bottom line to sink into the red again?

The business of consumer drones
Interest in consumer drones surged in 2010 when French company Parrot launched its $300 AR Drone quadcopters. Last quarter, Parrot reported that sales of drones rose 38% year over year to $24.2 million. In 2013, China's DJI Innovations launched its $1,000 Phantom quadcopters and generated sales of $130 million within the first year.

Parrot's AR Drone 2. Source: Parrot.

Both companies' drones are equipped with cameras. Other drones that lack onboard cameras, like the Blade 350 QX ($470), are equipped with GoPro-compatible mounts. That leads to a key question -- will aerial photographers buy GoPro's drone when most drones can already be used for the same purpose?

The answer might be portability. Parrot's AR Drone 2 weighs between 380g to 420g (depending on the hull), and measures 451 mm by 517 mm. That's more than twice as long and wide as an iPad Air 2, although it's notably lighter. AirDroids addresses that issue with a $549-$599 foldable tricopter known as the Pocket Drone, which can fold into a form smaller than a 7" tablet and mounted with a GoPro. An even smaller upcoming device, the Nixie wearable camera, will be able to fly off the wrist and film a user from a distance.

Airdroids' Pocket Drone. Source: Airdroids.

In my opinion, demand for these portable drones will outweigh demand for larger drones as the aerial photography market grows.

Market growth and challenges ahead
Research firm Teal Group estimates that global annual spending on drones will nearly double from $6.4 billion to $11.5 billion over the next 10 years. Teal's study shows that military drones currently account for 89% of the market, while civil drones account for the remaining 11%. Yet that split is expected to be 86% military versus 14% civil over the next decade.

Many of these civil drones will be used for commercial purposes, but if GoPro convinces its action camera customers to buy drones, the skies could soon be buzzing with more aerial photography drones as well.

Of course, that growth will be throttled if the FAA passes additional restrictions against civilian and commercial drones. In the U.S., consumer drones are already restricted from flying over 400 feet in the air and anywhere near an airport. The FAA Modernization and Reform Act currently has a deadline of Sept. 2015 to decide how to regulate drones more effectively. If the FAA follows through with a proposed requirement for drone pilots to obtain private pilot licenses, GoPro's dreams of mainstream action drones could be prematurely dashed.

More importantly, every country has different laws regarding consumer drones, meaning GoPro drones probably won't catch on as quickly across the world as its HERO cameras.

What drones mean for GoPro investors
GoPro stock has more than tripled since its IPO in June. But the bears believe the stock, which trades at nearly 230 times trailing earnings, has gotten ahead of itself. The rise of cheaper "GoPro knockoffs" may have forced the company to launch the $129 entry-level HERO, and its promise of turning the GoPro Network into a new source of revenue looks distant.

Despite those challenges, GoPro's revenue soared 45.7% year over year last quarter to $280 million. GAAP-adjusted net income rose to $14.6 million, compared to a net loss of $1.1 million a year earlier. But the fact remains that GoPro, which dominated 45% of the U.S. camcorder market in 2013, generates the lion's share of its revenue from its HERO cameras. If GoPro wants to reassure the market of its long-term staying power, it needs to diversify its top line with products like consumer drones.

But looking forward, investors need to beware of two things. First, R&D expenses, which soared 116% year over year and accounted for 27% of GoPro's cost of revenue last quarter, will climb as it develops those drones. Second, if new FAA rules are more draconian than expected, GoPro drones won't become anything more than niche gadgets for hardcore hobbyists.