Buy-Rated Co. Partners To Add AI Voice Control to Its Drones

Red Cat Holdings Inc. (RCAT:NASDAQ) will equip its current and future drones with artificial intelligence (AI)-driven voice control capability through a new partnership with Primordial Labs, a developer of AI systems requiring collaboration between human and machine, noted a news release.

To start, Red Cat will incorporate Primordial Labs' Anura interface into its Teal 2 drones, which are used by military, public safety, and government entities for intelligence, surveillance, and reconnaissance. This will allow operators to control the actions of the drones individually or as a cluster with voice commands.

"The flexibility provided by voice control, combined with the existing features in our offering, will continue to push Teal's drones into a leadership position," Red Cat's Chief Technology Officer George Matus said in the release. Existing features include forward-looking infrared imaging (FLIR), multi-vehicle control support, and a fully modular design.

Red Cat's joining forces with Primordial Labs is the latest in a series of partnerships it has formed around technology.

Red Cat has also joined forces with Tomahawk Robotics, Athena AI, Teledyne FLIR, Reveal Technology, Immervision, and Doodle Labs.

Growth in Revenue, Contracts

Headquartered in Puerto Rico and with a manufacturing facility in Salt Lake City, Utah, Red Cat Holdings develops and manufactures robotic hardware and software for use in aerial military and other operations. It has all the necessary certifications for supplying its products to the military and other governmental agencies and has been awarded multiple military contracts to date.

Think Equity has a Buy rating and a target price on the drone company, reflecting about a 590% return for investors.

Red Cat is on a growth trajectory, having just posted record revenue for Q3 of the fiscal year 2024 (FY24), which ended January 31, 2024, Think Equity Analyst Dr. Ashok Kumar relayed in a February 20 research note. Preliminarily reported revenue for Q3 was US$5.8 million ($5M), reflecting a 49% quarter-over-quarter increase. Q3 marked the third consecutive quarter of sequential revenue growth for Red Cat.

Currently, Red Cat has its largest-ever order backlog, valued at about US$5.1M, the company said, and is among the finalists for several military contracts to be awarded over the next 12 months.

New Law to Boost Drone Market

The drone markets in both the U.S. alone and worldwide are projected to continue growing in military and commercial sectors, data show.

According to Statista, the U.S. drone market is expected to expand at a compound annual rate of 0.36% between 2024 and 2028. Currently, the market is valued at US$1.4 billion ($1.4B). The U.S. stands out because, as Statista notes, it "is leading the worldwide market for drones with its advanced technology and extensive use in various industries."

Further, the U.S.'s total addressable drone market should see a big boost starting in December 2025 when a newly enacted law goes into effect. The American Security Drone Act (ASDA), reported UAV Coach, bans the U.S. government from using federal funds to purchase drones made or containing certain components made in China, Russia, Iran, and North Korea. The ASDA also prohibits the operation of drones manufactured in these countries.

Forecasted growth for the global drone market, Statista indicates, is even greater than that for the U.S. Estimates, put the market expanding at an annual compound rate of 2.26% between 2024 and 2028. Its current value is US$4.3B.

The Catalyst: Improved Financials

This year, Red Cat aims to continue increasing revenue, improving its profit margin, and, where possible, minimizing expenses.

For revenue in Q4 FY24, to end April 30, 2024, the drone technology firm has guided to US$7M, 20% higher than in Q3 FY24. If achieved, this would mean Red Cat generated US$28M in the nine months its Teal 2 drone has been on the market.  

ThinkEquity expects Red Cat's revenue to grow to US$35M from US$9.9M between FY23 and FY25, Kumar reported.

The investment bank has a Buy rating and a target price on the drone company, reflecting about a 590% return for investors.

Technical Analyst Clive Maund reviewed Red Cat's stock in a July 2023 note and, based on its three-and-14-month charts, concluded it was a good time to buy. He indicated he would stay long in the company.

Ownership and Share Structure

According to Red Cat, 37.27% of the stock is held by management and insiders. Reuters notes that CEO Thompson owns 16.52%, CEO of Fat Shark RC Vision Systems Gregory Ralph French has 6.49%, COO Allan Thomas Evans has 1.82%, and Director Nicholas Liuzza has 1.32%.

Institutional investors have 9.01%. The Vanguard Group Inc. has 1.75%, and Pelion Venture Partners has 1.21%, Reuters reported.

The rest is in retail. 

Red Cat Holdings has a market cap of US$53.27 million, with 74.16 million shares outstanding, and trades in a 52-week range of US$1.47 and US$0.525.

Important Disclosures:

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Red Cat Holdings Inc. 
2. Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
3.  This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company. 

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Disclosures for Think Equity, Red Cat Holdings Inc., February 20, 2024

Analyst Certification The analyst, Ashok Kumar, responsible for the preparation of this research report attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers; and (2) that no part of the research analyst’s compensation was, is, or will be directly related to the specific recommendations or views in this research report.

Financial Interests The analyst, Ashok Kumar, has no financial interest in the debt or equity securities of the subject company of this report. Further, no member of his household has any financial interest in the securities of the subject company. Neither the analyst, nor any member of his household, is an officer, director, or advisory board member of the issuer(s) or has another significant affiliation with the issuer(s) that is the subject of this research report. The analyst has not received compensation from the subject company. The CEO of ThinkEquity, LLC., owns shares in the company. At the time of this research report, the analyst does not know, or have reason to know, of any other material conflict of interest.

Company Specific Disclosures ThinkEquity, LLC is a member of FINRA and SIPC. ThinkEquity, LLC or an affiliate has a client relationship with and has received compensation from this subject company Red Cat Holdings, Inc. in the last 12 months.

ThinkEquity, LLC ThinkEquity, LLC is a member of FINRA and SIPC. ThinkEquity expects to receive or intends to seek investment banking business from the subject company in the next three months. ThinkEquity does not make a market in the securities of the subject company of this report at the time of publication. ThinkEquity does not hold a beneficial ownership of more than 1% or more of any class of common equity securities of the subject company. This report is for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of an offer to buy any security. While the information contained in this report has been obtained from sources believed to be reliable, we have not independently verified the information and we do not represent or guarantee that the report is accurate or complete and it should not be relied upon as such. Any references or citations to, or excerpts from, third-party information or data sources (including, but not limited to, Bloomberg and Capital IQ) do not and are not intended to provide financial or investment advice and are not to be relied upon by anyone as providing financial or investment advice. Based on public information available to us, prices and opinions expressed in this report reflect judgments as of the date hereof and are subject to change without notice. The securities covered by or mentioned in this report involve substantial risk and should generally be purchased only by investors able to accept such risk. This research report and the securities mentioned herein, some of which may not be registered under the Securities Act of 1933, are intended only for Qualified Institutional Buyers (QIBs), as defined under Rule 144A. Any opinions expressed assume that this type of investment is suitable for the investor.