ZenaTech (NASDAQ: ZENA) is a new public stock that recently gave investors news to be happy about. After the company’s Oct. 1 initial public offering (IPO), shares traded down, losing 80% of their value through Nov. 22. Then, in the matter of two trading days, shares spiked 475%. This put the stock back above where it started its journey.
Since then, it has traded down significantly, back below its initial offering price, for a total return of -26% as of the close of Dec. 4. The company’s wild rollercoaster creates intrigue. I’ll detail what this company does, the event that caused its shares to spike, and provide my take on this technology stock going forward.
ZenaTech’s Business and Transition to Unmanned Vehicle Systems
ZenaTech's registration filing explicitly distinguishes its current business from its anticipated business. The company currently offers numerous software products. These software offerings serve many different markets and use cases. It also divides its software business into those currently generating revenue and those that are not. Those generating revenue serve the healthcare, industrial, surveillance, and call center industries. The company's non-revenue-generating software ties in with its anticipated business. This revolves around Unmanned Vehicle Systems or drones. The company does not plan to end or make changes to its software business as it pursues its drone business.
The company wants to expand its business into this space, which is the primary reason for interest in this stock. The drone business is currently geared toward three key markets: agriculture, inventory management, and defense. Its non-revenue-generating software is being built to help farmers operate ZenaTech drones. The company aims to track plant-related data, optimize farming practices, and improve crop yields. Five pilot customers in the agricultural space are currently evaluating the company’s ZenaDrone 1000.
It also wants the U.S. government to use its drone technology to aid national defense. In December 2023, the company signed contracts with the U.S. Air Force and U.S. Naval Research to demonstrate the capabilities of the ZenaDrone 1000. The function of the drone is to carry cargo. The company emphasizes that it is “five times larger than many commercial drones and made with carbon fiber to keep it lightweight." This conceivably gives it the ability to carry significant amounts of cargo within military zones. The company is also developing a small drone to help manage inventory in warehouses. The U.S. Patent Office has issued the company two utility patents and two design patents for its drone technology.
What Caused ZenaTech Shares to Explode Upward?
ZenaTech shares soared on Nov. 25 and Nov. 26 due to an announcement the company made regarding its drone technology. The company announced that it had signed agreements with key supply chain partners. They will make ZenaTech drones compliant for sale to U.S. Defense branches and North Atlantic Treaty Organization (NATO) forces.
The company confirmed that its drones contain no parts made by certain Chinese companies. This now allows the ZenaDrone 1000 to qualify for inclusion in the Blue Unmanned Aerial Systems (UAS) list, which would allow the company to do business with the U.S. Department of Defense (DoD).
The announcement is a big step, but the company has more hoops to jump through. First, it will work to gain Green UAS certification, which is less rigorous and more streamlined than gaining the Blue UAS certification. If successful, it will then move to actually attain the Blue UAS certification. Then, ZenaTech will position itself to start doing business with the U.S. DoD. Investors should not misinterpret this announcement. It does not imply that ZenaTech is close to doing business with the U.S. government.
ZenaTech: Exciting Technology, But a Speculative Investment Right Now
Overall, ZenaTech is an interesting company to keep an eye on. It should trade similarly to a biotech stock. Government approvals or denials during UAS certification will greatly affect the price. The company gained $7 million in proceeds from its IPO. This should give it a few years of runway, considering it lost nearly $1 million in cash from operations in the first six months of 2024.
It is important to note that the company has significant amounts of convertible debt and warrants. They could cause shareholder dilution in the future. At this point, I view ZenaTech as highly speculative. Seeing more progress through the UAS certification would increase my interest.
