In February, Axon Enterprise (AXON 4.03%) reported full-year 2024 revenue of $2.1 billion, marking its third consecutive year with over 30% top-line growth. The stock soared over 15% on the earnings news, but shares have been volatile along with the rest of the market in the past two months.
That said, while the Nasdaq Composite is down double digits year to date, Axon has shown resilience in the face of macroeconomic uncertainty with just a 2% decline. That should already be enough to perk up investors’ ears, but the stock’s almost 400% return in the past three years is making it impossible to ignore.
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Building products to protect life
Axon is not just any tech company. Best known for its less-than-lethal TASER, the company now supplies law enforcement agencies and other customers with a complete platform revolving around public safety. Beyond TASER, there is hardware like body cameras and drones. And on the software side, there is Axon Evidence (a cloud-based evidence management platform) and Axon Fusus (a data analytics service), among others, with artificial intelligence (AI) playing an increasingly important role in the platform as well.
Together, these products aim to help officers respond faster to emergencies, improve decision-making, and increase their operational efficiency. This platform approach has diversified the company’s revenue streams. In 2021, TASER made up just over 50% of revenue. Three years later, TASER revenue grew 87% to $819 million, but its share of the top line fell to 39% with Axon Cloud & Services on the verge of eclipsing that segment to become the company’s largest business.
It’s also important to note Axon has $10.1 billion of future contracted bookings and $1.0 billion of annual recurring revenue, giving investors ample financial visibility for the next few years.
A clear path to growth in the coming years
Unlike many of its high-growth tech industry peers, Axon has paired its 30%-plus revenue growth with strong profitability — non-GAAP net income almost tripled from $159 million in 2021 to $466 million in 2024.
While impressive, this is just the tip of the iceberg for Axon, thanks to its unique position at the intersection of public safety, cloud software, and AI. According to the company, it has a total addressable market (TAM) of $129 billion, of which law enforcement use cases account for 50%, and the remaining is from private enterprises and the civilian market. Based on this estimate, Axon has captured less than 2% of the opportunity.
Besides its huge TAM, Axon’s unique business model provides a good foundation for growth. It $1.0 billion of recurring revenue is high-margin, sticky, and scalable, giving the company plenty of leverage for future growth. Here, it’s essential to emphasize that half of its TAM is for products and services that are sold are on a per-user basis, so any increase in the user base has direct benefits to Axon’s business.
Other key growth drivers include the constant upgrade of products and new categories — such as drones and robotics — thanks to rapid technological development. In particular, the advancement in AI offers plenty of opportunities for Axon to enhance its offerings, both to front-line officers and in its backend processing. And public safety is not a domestic issue, so Axon can leverage its know-how to expand its overseas business.
In short, there are plenty of levers that Axon can pull to keep its growth machine spinning in years to come.
What it means for investors
Axon Enterprise has become one of the most compelling growth stories in recent years.
While TASERs and body cameras are its most visible, well-known offerings, the real engine of growth lies in Axon’s transformation into a digital platform with long-term potential for recurring revenue growth. And in this volatile market environment, investors should at least keep the company on their watch list.
Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Axon Enterprise. The Motley Fool has a disclosure policy.
