Does AeroVironment's (AVAV) Decline Raise Questions about the Drone Market?

Stephen L Kanaval  |

AeroVironment, Inc. (AVAV) took an almost 17% dive today after the company reported a larger than anticipated loss for the 2017 first quarter. The California-based drone maker lost 51 cents per share versus the expected market prediction of 17 cents. In the press release, AeroVironment President and Chief Executive Officer Wahid Nawabi said, “We continue to work toward achieving our stated full year guidance of $260 million to $280 million in revenue and $0.20 to $0.35 fully diluted earnings per share. Additionally, we expect revenue in the first half of the year to represent slightly less than one-third of full year revenue, and we anticipate full year research and development expense of 12 percent. Finally, we expect second quarter gross margin in the low 30 percent range and full year gross margin in the mid-30 percent range."

The news sent the stock to as low as 19.4% and the stock rallied slightly; however, investors still have many questions to ponder about the company’s future. AVAV’s biggest losses came from its actual drone sector, which should be its bread and butter. In addition, the net loss grew from $7 million to $11.6 million. However, the company does have delayed revenue in the wings for the back half of the year.

A few years ago, AVAV made a business decision to focus on R&D to fully explore the uses of the product and to develop their drone technology. Now, the market and space itself has grown (even becoming a sport on ESPN), but the company’s bottom line is taking a serious gut punch. Rightly so, many are not thinking about the future of that R&D, rather the upcoming year’s projections.

The company’s sales have dipped and been backlogged because of export license approvals. Yet, the space for commercial drones is more wide open after the FAA released regulations about acceptable weight, height and altitude. The rules by the FAA lay the groundwork for the industry to start seeing real profit.

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