Axon

The Evidence.com dock and charging station with Axon body cameras. Image source: TASER International.

TASER International, Inc. (NASDAQ:AAXN) is well known in law enforcement as a dominant taser company and a leading supplier of body cameras. And as fellow Fool Rich Smith recently pointed out, tasers in fact dominate the company's business.

But for investors buying today, it's the cloud data business, known as Evidence.com, that they should see as the real value creator, because it could dominate the company's profits before you know it.

Axon

Image source: TASER International, Inc.

The real money behind body cameras

When a law enforcement agency decides to buy Axon body cameras, it creates an immediate revenue source for TASER International. In the case of the Axon Body 2, the company's advertised price is $399 per unit.  

But most customers also choose an Evidence.com subscription with the camera, which can run as high as $79 per month for the unlimited package.

In the case of the 2,031 Axon Body 2 cameras sold to the Chicago Police Department, there was $810,369 in potential revenue. But the 5-year unlimited package to Evidence.com could bring in $9.63 million in revenue over the course of the deal. And, as I'll cover below, the margin trends on the data side are incredibly favorable. 

The real value for TASER International is the data behind the cameras, and that's what investors should be focused on.

The new cash cow at TASER International

Body cameras and cloud data support are really just getting started, but already numbers are pretty incredible. In the first quarter of 2016, the Axon service segment, which includes Evidence.com, saw revenue jump 153%, and the business generated a 75.8% gross margin. Although that's growth from a fairly small base, the margin number dwarfed the 30.2% margin in Axon hardware sales.

 

Revenue

Gross Margin

Growth YOY

Tasers

$45.8 million

69.3%

19.5%

Axon Hardware

$4.8 million

30.2%

7.5%

Axon Services

$4.9 million

75.8%

153%

Data source: Company earnings releases. YOY = year over year.  

The beauty of this business model is that the high-margin portion of the body camera business model is also the largest portion of the revenue stream. Over five years, it can generate more than 10 times the revenue of a single body camera, providing profits for years to come. And the cost of storing data is only going down, so margins could conceivably rise in the future, assuming pricing stays the same.

Where investors should really be looking

Sometimes companies can give investors too much information to think about with press releases about every sale or new product. But in the case of TASER International, every camera that goes into the field with an Evidence.com subscription attached to it is a high revenue profit center for the company. 

As the company keeps signing up more and more law enforcement agencies worldwide, it'll be building a business with recurring revenue for years to come. And that's the kind of stock I want in my portfolio. 

Travis Hoium owns shares of Taser International. The Motley Fool recommends Taser International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.